Google: Why should we pay tax when we make 'intangibles'? Irritated at global moves to lop the odd choc truffle off its outputs, Google has launched a spirited defense of its right to underpay taxes in Australia, on the basis that the benefits it brings to the local economy are intangible. In an upcoming profile piece in the Australian Financial Review's style-and-fashion supplement …
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The more interesting question is how much R&D tax credit does it claim to reduce the social security and income tax contribution of said engineers.
When a company the size of Google starts beating itself in the chest on how much people it has hired locally you have to double-check on what kind of perks did it negotiate itself in order to do it.
I don't disagree with what you said, other than wondering whether avoiding taxes truly qualifies as "evil" behavior.
A tax dodger would hardly make for a good bond villain, while some of the other stuff Google does makes one think that Sergei might look good with a nice fluffy white cat...
Dear Sir,
"Don’t be evil. We believe strongly that in the long term, we will be better served — as shareholders and in all other ways — by a company that does good things for the world even if we forgo some short term gains"
as quoted from the Google IPO manifesto back in 2004...
By that standard, dodging taxes is evil.
Regards,
Guus
I would say tax avoidance is most certainly evil.
Those taxes help keep everything running. Even though google claims they make intangibles their goods still rely on utilities working so helping pay for them isn't asking too much.
Just look at the US with it's infrastructure slowly starting to fall apart. Is that what everyone else wants? A handful if super rich monopolies a bunch of life-threatening busted up roads and bridges?
I certainly don't.
>>I would say tax avoidance is most certainly evil.
Do you make use of your personal tax allowance?
Do you have money inside an ISA wrapper?
Do you have money in a private pension?
Do you accept tax free winnings from premium bonds, the lottery or other gambling?
Have you ever sold your home but not paid capital gains on it (Capital Gains Tax relief on your own home - Private Residence Relief)?
and so on...
Answer yes to any of these and YOU are the evil tax avoider...
>>Google et all are exploiting a loophole in a way which clearly wasn't intended.
If the government offer tax incentives to companies to take on employees or to open factories etc. in certain (disadvanted) areas then this is not a "loophole" but is working as the government intended in exactly the same as any other tax relief offered.
As for the "loopholes" - if the government was really bothered they would change the law. The don't care and therefore don't change the law. The only way they will care enough to do anything if lots of people jump and down complaining about it (as is happening now) and the reaction is sufficiently large that they believe their political careers are in danger.
"Ok Mr Google. You don't need our people to work for you. Then We don't need Google here in OZ. You sack our people then we will start blocking Google. I am sure the good People at Ali-BaBa will help us replace your services here in our great country"
Well, it may not happen here but sooner or later a Gov will get peeved enough to actually start blocking Google/Amazon/MS/whoever IP addresses from being accessed by their citizens.
That's a two-edged sword. It is far easier for google to launch an anti-Oz government campaign than it is for the Oz government to organise and justify a block.
"This youtube video may be slow due to Australian government IT policy."
See how many votes that will win/lose.
That's a two-edged sword. It is far easier for google to launch an anti-Oz government campaign than it is for the Oz government to organise and justify a block.
Any company that as much as HINTS at using this as a means to bypass local laws should be immediately thrown out of the country. This sort of blackmail of democratic process is becoming far too frequent to ignore. I did not vote for Google, nor do I want them to have a controlling role - screw that.
> the benefits it brings to the local economy are intangible
And the attributes that taxes pay for are equally intangible. You know, all those airy-fairy "things" that we all enjoy, that without a tax-paying population we wouldn't have. All the stuff that governments use our money to buy (duck houses notwithstanding) for us.
Things like: security, stability and laws. Whaddaya mean? you thought the police and the teachers and suchlike were all paid for by the mythical "they". The same people so often cited in phrases such as "they really should do something about ... " Or that there was some infinitely deep pot of money that paid for all the "free" services we have. All the education, health, welfare - you could even put BBC TV (oh yeah, and radio) into that category.
These features of our society might be intangible. They might be so subtle or ubiquitous that we forget they exist or just assume they'll always be there - a bit like The Internet, without which Google and its ilk would never exist, However, it's exactly those properties that make one (developed) country or another more or less attractive to multinationals and mega-corporations - which presumably, is why Google has chosen to have a presence in Australia,
You'd hope that a provider of internet services would have a bit more of a clue about where her business comes from and what it's based on.
@Pete 2
I was on the receiving end of an over-zealous police officer once; seemed pretty fucking tangible to me : )
Likewise other things taxes pay for like roads. Twice in my youth I attempted skateboarding down 'hills of death'. As with the police, I can vouch for asphalt's tangibility. (It was similarly unforgiving, as well.)
Notwithstanding the tangibility of said police officer and road, the tangibility or otherwise of the goods and services provided by Google have no bearing on whether they are taxable activities.
They really don't do their net neutrality arguments any favours by such asshaterie. Organisation A which throws lots of money at political parties to attempt to get a fast/slow lane made legal and organisation B who refuses to pay tax to the said governments whinges about it.*
* I get there is a difference between a party and the government, but even dumb governments recognise that a healthy tax base allows you the revenue to do your political leaning (cut taxes or increase government services) so even little government fans tend to hate tax shirkers.
You mean intangibles like completely free mapping and satellite imagery along with photos of every road in the country? "They" pay for those, without which we'd all still need to be buying actual maps. I remember before Google maps when we actually had to pay for internet mapping services. "They" also pay for the various other Google services which work to improve the country and often its business environment too. Google Translate allows people to communicate more easily for instance.
I neither agree nor disagree with the tax situation, but I think Google are right to point out that they offer more to the nation than adverts and search, and life in 2014 is incredibly different to life in 1994 as a direct result of many of the things Google have done. 20 years ago you'd have laughed out loud if someone told you they planned to take 360 degree pictures of every street on the planet. Now you wonder why there aren't pictures of the inside of buildings such as malls too. If you never use any of these completely free services then fair enough, but I consider myself as getting better value for money from Google for the cost of their tax than I do from my government for the cost of my tax.
I neither agree nor disagree with the tax situation, but I think Google are right to point out that they offer more to the nation than adverts and search
.. but if you for one second believe that this is offered for "free" you really need you head examined. Google collects data on a massive scale, and uses that data to make a profit in whatever way it can get away with. It funds such projects because it makes it look good, but you should not overlook that Google's profits are mostly based on one thing: your personal data. Which it acquires by selling services as "free", but which in reality take a terrible toll on the na¨ve: the loss of their privacy.
Paying for services with your personal details doesn't make those services free, it means you'll be paying for them forever because you cannot stop that payment. You cannot change who you are and you cannot take that data back. "Free" is one of the most dangerous lies of the Internet ever.
Underpaying tax??!?! Google follows the laws that politicians decided upon. If the politicians want more money, then change the tax laws and stop complaining. End of story.
People who live on public hand outs (politicians) should be very careful when adopting the "moral high ground".
I am all for google and every private individual/entity doing what is legal to reduce their tax bills, but as a justification this is weak. Forget threats, it is as simple as the tax law is written by the politicians so they can pay for bribes and pet projects and if there is anything left maybe the public services. Legally reducing the tax bill is not a crime and governments are begging for more jobs in their various countries.
I think the boss over there needs a bit more coaching because making lousy excuses will not keep people like me on their side.
I might be being a simpleton here, but what's to stop a government from simply making it illegal to funnel revenues out of the country (call it tax evasion if you like) and basically say "all revenue raised from business activity in this country is liable for tax"? So with Amazon for example, prevent them using their "Sold by Amazon SARL" wheeze when you buy something from Amazon.co.uk?
The issue arises because we tax profits, not revenues.
So if I buy a widget from my supplier for £10 and sell it for £30 I book £20 profit and get taxed on that.
However what if my "supplier" is my sister company in another company with a lower tax rate, they could then sell me the widget for £20 and I sell it on for £30 thus only booking £10 profit saving myself the equivalent of tax on £10.
As long as the tax levels in my sister company's country are lower then even though they are booking an extra £10 profit by artificially inflating their sell price there is a net gain to the overall company.
This example only deals with GP, once you start adding in things like fees charged for using brands and logos you can kick the net profit right down.
> So if I buy a widget from my supplier for £10 and sell it for £30 I book £20 profit and get taxed on that.
Good heavens! No. You don't even need schemes with other colluding companies.
Your accountant factors in the cost of sale: your time at whatever hourly rate you have arbitrarily chosen. The amount of time taken to sell-on the widget: again, at whatever number of hours you arbitrarily decide. Plus the cost of advertising, marketing, essential office services and "reputation" and of course the cost of your accountant. When all that is taken into account you'll probably (if your accountant is any good at all) have made a loss and will have no tax to pay.
For most well run companies, the amount of profit (or loss) they report is a choice they make. Even shopkeepers in your local high street do the same thing. Making too much money? Simple: buy extra stock to use up that cash, thus reducing your taxable "profit" for the year.
That was Starbucks best wheeze.
When buying all their UK coffee beans from that famous coffee growing country Switzerland wasn't enough the UK arm gets charged a whopping sum for using the Starbucks name. Hey Presto! Profit turns to loss.
Quite how that got past the transfer pricing rules is a mite baffling.
"Good heavens! No. You don't even need schemes with other colluding companies"
You're absolutely correct, I omitted the step of going from gross profit to net profit. However the basic details are correct, to transfer the profit to a lower tax regime you artificially inflate the price of the widget sold by your company in the low tax area to your company in the higher tax area thus dropping GP in the high tax area and transferring the profit from the high tax area to the low tax area.
As I mentioned in my original post you can then do all sorts of other stuff to your GP figure to transfer more profit out to the lower tax area such as paying the company in the lower tax area a licensing fee for use of the brand, money for marketing material etc. But you do definitely need a colluding company, just altering the profit you declare isn't what these companies want to do, they want to actively transfer that profit to a lower tax area - essentially you want as many costs of sale as possible paid to the colluding company, just paying it to random sundry companies inflates their profits and does nothing for yours.
When corporations export their profits to tax havens, they often implement this under the guise of "IP Royalty Payments", or "Management Services fees", to one of their off-shore shell companies. It converts untaxed profit to an "expense" in the accounting dept.
So, tax these supposed imports!!
A simple blanket import tax, maybe 10% tax rate, on all imports of "IP Rights" or "Management Services" or whatever name they come up with to balance the books of the untaxed money flowing out.
This could be implemented almost overnight.
With Corporation Tax at 21%, a 10% charge isn't good enough - it only costs then 7.9% since the 10% import tax reduces the profits on which the do pay corporation tax. The import tax rate would need to be about 26.6% to cost them as much as if thy payed corporation tax on the whole amount, but that's probably excessive since some Royalty of Servce fee is probably reasonable in many cases. Setting the import tax rate to be 25% would perhaps be reasonable.
Google are nothing special, this is just what happens when you're multinational... you have to set up a company in each country you want to trade in (I think) so that when you work for Google in the UK, you are employed by Google UK rather than by a foreign employer... would you want to live by American employment rights?
All messy, and not easy to sort out since one country can't tell a company how it should act in other countries.
Is to deny tax deductions for the money spent with google. governments have auditors to check this stuff. Similarly, there are generally agreed on accounting principles (GAAP) which govern how accounting is done, so even if you play games with the way you spend your money, you are risking government ire if you don't do it correctly. Income earned in a country should be taxed in a country.
1) Tell Google they don't have to pay corporation tax.
2) Impose a new tax based on the number of visitors to your website. It could be set up so you pay nothing for the first million visits from the country levying the tax, then a penny for every visit after that. Don't want to pay the tax? Then your website gets blocked.
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