Firms will have to report OWN diverted profits under 'Google Tax' law Under the so-called "Google tax" regime due to come in next year, multi-nationals will have to "self-report" any diverted profits to HMRC and then defend their own activities, according to draft legislation on the Diverted Profits Tax published today. Last week chancellor George Osborne pledged to slap a 25 per cent tax on …
And it's wishy-washy "guidance" and legislation like this that allows companies to construct ways around existing tax laws.
Give it a few months and they'll come up with another scheme making the "google tax" useless - much like those drafting the law in the first place.
But isn't this draft law designed to be generalised and a catch-all? So it's basically a law against using legal and obviously immoral loopholes?
It's basically saying, "if you utilise a scheme which clearly diverts profits out of the UK, you have to tell us, and then justify those actions"
I'm not sure how you'd work around something like that, but then I'm not a devious wanker corporate accountant.
Sounds like they are applying similar rules to the one for personal taxation where if you use a tax avoiding scheme you are required to inform the taxman of this and they can then decide if it's legal or not ... and if you don't tell them then it probably becomes by definition tax evasion and gets added penalties. Given that the diverted profit tax is more than normal corporate taxes then think the whole idea is to get companies to correctly declare their UK derived profits. Is choice is pay tax in the UK, or pay more tax on profits you move elsewhere or be liable for tax evasion penalties.
>But isn't this draft law designed to be generalised and a catch-all?
No. It's a draft law designed to make the Government look as if they are doing something about tax avoidance by large corporations. Why do you think they are doing it now, rather than several years ago?
They are caught between the Devil and the deep blue sea - they don't actually want to piss off those corporations because that is where their political donations, comfy directorships etc come from, but at the same time they don't want to piss off the great unwashed who get to vote for a new Government in May.
So, some handwaving to appease the peasants before election time, and then back to business as usual.
It's basically saying, "if you utilise a scheme which clearly diverts profits out of the UK, you have to tell us, and then justify those actions"
But isn't that essentially creating a "guilty until proven innocent" situation?
Laws should be simple: You can do what you want except this, if you do do that you'll be in trouble. They shouldn't be trying to second-guess the lawyers.
Of course there is the old pre-EU-joke (Churchill?):
- In England, everything is permitted except what is forbidden.
- In Germany, everything is forbidden except what is permitted.
- In France, everything is allowed, even what is prohibited.
- In the Soviet Union, everything is prohibited, even what is permitted.
so how do we get any international agreement...
"But isn't that essentially creating a "guilty until proven innocent" situation?"
Not really. If you are found by police standing over a dead body with a bloody knife, you would have to "justify yourself" as well.
Diverted profits should be considered tax evasion unless there's a reason for diverting them. I think that's an entirely reasonable position. By which I mean: you have definitely done something that looks like a crime (tax evasion). Unless you can provide an alibi (the justification above) you look guilty beyond reasonable doubt.
Another way to think about it: if an unemployed person with no rich relatives turns up to the bank with a suitcase with £10m in it, they will definitely be arrested, and will have to come up with a good reason why they have £10m in a suitcase. The fact they possess it would probably be enough to go for handling stolen goods beyond reasonable doubt, because there is no reasonable way any person without a very high-paying job can lay their hands on £10m.
Not really. If you are found by police standing over a dead body with a bloody knife, you would have to "justify yourself" as well.
No, not in the UK. The courts would have to prove that you had done something wrong with the knife.
By which I mean: you have definitely done something that looks like a crime (tax evasion). Unless you can provide an alibi (the justification above) you look guilty beyond reasonable doubt.
Are you serious? You're planning to punish people just because they look guilty?! Maybe you'd like to waterboard them until they confess?
a good reason why they have £10m in a suitcase. The fact they possess it would probably be enough to go for handling stolen goods beyond reasonable doubt, because there is no reasonable way any person without a very high-paying job can lay their hands on £10m.
Outside of winning the lottery, or finding it abandoned in a taxi, you mean?
However they came by it is irrelevant, if they cannot be proven to have commited a crime, they cannot be punished for it.
If the law allows these companies to divert their taxes then the law is an ass and should be changed. Until it is the companies have committed no offence, however immoral you may consider their acts to be.
"Are you serious? You're planning to punish people just because they look guilty?! Maybe you'd like to waterboard them until they confess?"
Doesn't need to: Russell Brand, The Grauniad, and the assorted politicos are already lining up to do that.
"If the law allows these companies to divert their taxes then the law is an ass and should be changed. Until it is the companies have committed no offence, however immoral you may consider their acts to be." - problem is, based on the record of governments over the last 15 years, it _will_ be changed. To something much much worse. Things that were publicly stated to be purely for catching terrorists ended up being used for checking whether children are going to the right schools; if that example is anything to go by, an attempt to take more tax from multinationals will end up meaning more loopholes created and a lower overall tax take.
If the concern is the UK is not getting it's fair (define fairness, please, HMRC - is the Vodafone deal fair to Joe Public, small business owner?) share of tax because of Ireland's attractive 12.5% rate, cut the UK rate to 12.5%, impose a flat no-loopholes rule with absolutely no loopholes for anyone whatsoever (no matter how cuddly), and so on.
"If the concern is the UK is not getting it's fair (define fairness, please, HMRC - is the Vodafone deal fair to Joe Public, small business owner?) share of tax because of Ireland's attractive 12.5% rate, cut the UK rate to 12.5%, impose a flat no-loopholes rule with absolutely no loopholes for anyone whatsoever (no matter how cuddly), and so on."
And then what do you do when Ireland cuts its rate to 10%? Cut our rate too?
Guess what Ireland's response to that would be? That's right: 7.5%
Pretty soon no no multinational would need to pay very much at all.
@ Roj Blake
"Pretty soon no no multinational would need to pay very much at all."
And thats bad? If the only selling point a country has is it will take less tax then there is something wrong with the country. If your selling point is that you will steal less money from those who earn it then that is what the companies will focus on. If multinationals get a better deal elsewhere (robbed less and the capacity of the country to cope with the job).
Blindly taking more and more while providing less and less will definitely make the companies look elsewhere and it is us who will lose the jobs, the tax money and the other benefits of each company.
"Blindly taking more and more while providing less and less will definitely make the companies look elsewhere and it is us who will lose the jobs, the tax money and the other benefits of each company."
In Google's case the issue is that their sales to UK firms are being dressed up as IE sales and taxed in IE at the lower rate. In order to take their bat and ball and walk they'd have to stop selling to UK firms. Not sure even the most spiteful of firms would actually close their doors to a lucrative market just so they could cock a snoot at the tax authorities.
@ Andrew Meredith
"In Google's case the issue is that their sales to UK firms are being dressed up as IE sales and taxed in IE at the lower rate. In order to take their bat and ball and walk they'd have to stop selling to UK firms. Not sure even the most spiteful of firms would actually close their doors to a lucrative market just so they could cock a snoot at the tax authorities."
Depends how abusive the gov is. The gov didnt earn any of that money but feel entitled to it, the same as with our hard earned cash. The gov set up the rules and are happy with it, until now that they want more money the adjust the rules and call it a 'google tax'. That alone is not particularly friendly. It is google who earn money, pay tax and employ people in this country. By attacking them (and the way this has been done at least is an attack) it is the gov who is having a strop and up to google to decide how much effort we are really worth. I doubt they will leave either but they will have plenty options to cause problems to the ingrates
"Not sure even the most spiteful of firms would actually close their doors to a lucrative market just so they could cock a snoot at the tax authorities."
Wouldn't they? Google pulled out of China with far more at stake.
If Google was to close its doors in the UK and refuse to take on UK advertisers, you can rest assured that the German/Spanish Newspaper fiascos would seem like mere trifles in comparison.
Seriously: The loss of income to the companies which advertise (nobody advertises unless there's profit in doing so) would be sufficient that the govt of the day would probably find itself the loser of a confidence vote in Parliament. MPs on all sides would be facing brickbats in their constituency offices, no matter what their political affiliation.
"In Google's case the issue is that their sales to UK firms are being dressed up as IE sales and taxed in IE at the lower rate."
VAT is now paid in the customer's country at the customer's VAT rate.
Taxing gross/net income is another kettle of fish and there are ways of dealing with them without killing the Golden Goose.
if the UK eliminated the umpteen volumes of exceptions in tax law, they'd probably be able to get more in with a 12.5% tax rate than they do now - and probably net more because they could lay off 2/3 of HMRC staff.
This isn't pie in the sky handwaving. It's been done before. The important thing is to stamp out the plethora of exemptions and loopholes which can be exploited (including the varying rates of VAT, which are a fraudster's wet dream)
"if the UK eliminated the umpteen volumes of exceptions in tax law, they'd probably be able to get more in with a 12.5% tax rate than they do now - and probably net more because they could lay off 2/3 of HMRC staff."
I keep looking for a political party that dares this kind of honesty. But this is a tax/state loving country no matter how much they moan about the leadership.
That puts this law well beyond the comprehension of 99% of politicians, and they are going to vote on this.
I can see this law making money for lawyers to argue about it, but the projected revenues must be like 84.7% of statistics: made up on the spot.
Currently these 'diverted profits' are written down as Franchise costs or IP costs etc etc. Why on earth does HMRC* think that they can produce a piece of legislation which achieves what they think they want? They have never managed it before and the multi-nationals have a lot more reasons to side-step the laws than HMRC* have to write them.
Can't wait for the first company to report every single purchase and salary payment they make throughout the year as diverted profit and drown HMRC in paperwork.
*OK, yes I know that technically it is not HMRC that write the laws but...
Actually, in the case of Google at least, there is no franchise or IP cost; they just have an Irish company signing all the contracts. The EU single market makes it possible to declare all your profits in a single country, to alleviate the burden of filling tax forms. It is true that Google happens to also have a company in the UK, but that is technically irrelevant.
There are franchise and IP costs, charged to the Irish company, to move the profits even further offshore, so they don't pay anything like 12.5% tax on their profits. The Irish authorities are generally happy to allow 95% of the profits to be shifted in this manner.
"Why on earth does HMRC* think "
This isn't HMRC thinking. This is the brainchild of a committee of some career-civil servants in an ivory tower somewhere, promoted on seniority, not on abilities and who don't have the abilility to think things through.
Google can, has and _will_ walk out of countries if pushed hard enough.
Examples: China (entirely), Germany, Spain (media linking).
It's UK companies who would suffer economically as a result and politicians who'd be chopped in the long term.
It's your clients that this is targeting, you know the ones avoiding paying taxes in the UK whilst doing business here to the tune of big numbers with lots of zeroes after them. Companies like Google, PayPal, Amazon, Apple, Starbucks, Vodafone, etc. etc. Complaining that you don't yet know how to advise your clients as to how to circumvent these measures seems at best churlish. If these companies decide that it is no longer profitable to do business in the UK as a result, then good. They can all fuck off, and let British businesses fill the gap.
I have to pay tax on my income, why shouldn't they.
Because they don't get any income, they make a profit that is then distributed to share holders as income which IS taxed
Except some of those companies (Apple I'm looking at you) are very well known for not paying dividends to their shareholders entirely to avoid paying the taxes involved.
"Except some of those companies (Apple I'm looking at you) are very well known for not paying dividends to their shareholders entirely to avoid paying the taxes involved."
And in your wonderful naive view of the world Apple has all that cash tucked away under a shed load of mattresses doing nothing, certainly not oiling the machinery that keeps our largely capitalist world a spinning.
@jonathanb: I think the Federal Reserve would have a teeny bit of an issue with Apple stashing away that amount of hard cash and keeping it out of circulation. Weird that your reference actually points to the amount of money they have stored in banks and other 'cash' investments rather than the hard cash you allude to.
You do know that when the bank says you have $100 in your account that doesn't actually mean there is a $100 bill stored away somewhere safely just for you, don't you? I guess not, so it may come as a shock when you find out that the bank doesn't even have that $100, it has lent it out to someone else!!!OMG!!!
It sounds like this is not creating any new tax burden, is it? What is it exactly that would stop Google from just declaring all over the same thing: "We have an Irish company selling a lot of ads, and according to EU laws, you cannot tax that. We also have a UK company, which is just an intermediary and hardly making any money; go ahead and tax it."
"It sounds like this is not creating any new tax burden, is it? What is it exactly that would stop Google from just declaring all over the same thing: "We have an Irish company selling a lot of ads, and according to EU laws, you cannot tax that. We also have a UK company, which is just an intermediary and hardly making any money; go ahead and tax it.""
They are probably going to claim that it's the UK office that sells the ads and Google are lying.
Roy-Chowdhury said: "It's a bit like reporting yourself to the police and then having to defend yourself."He added: "It seems strange that multinationals would have to report themselves and the the onus is on them to defend their [tax activities.]"
That's the whole point of the legislation; to ensure multinationals have defensible tax strategies, rather than, say, indefensible ones. Or in other words, if you don't think you can defend yourself successfully upon being (self) reported to the police, then you should change your tax strategy to one that you can successfully defend.
Google et al have been investigated multiple times by the HMRC, and had to explain how what they were doing could be legal. Every time, the result of the investigations was that they were doing nothing wrong. They already have a defensible strategy.
For things to change, the government must find a way to make their actions illegal. Asking them to repeat the explanations they already gave is useless.
Which is exactly why I find his statement jarring; if current tax strategy is already defensible then reporting yourself is not an issue, and if current tax strategy is not defensible (aka illegal) then your employees are already supposed to report you because "business ethics".
He's attacking the part of the legislation that changes nothing, rather than the bit where they want a percentage of monies that are currently left untaxed. Which is odd, and leads me to suspect that the bit adding new tax is actually full of holes and this is an attempt to distract people from it.
The more things change, eh?
"Tory outsourcing at its finest."
Financially efficient and by competent agents you mean, as opposed to Labour outsourcing which generally wasn't?
The previous Labour government undertook a vast programme of outsourcing at a time when most current senior Labour politicians were either ministers or their advisers. Their ongoing criticism of G4S and Serco over tagging, or Atos over its work in disability assessments, is blunted by the fact that all these contracts were first let under Labour.
I think you'll find the multi-millionaires of Liebours front bench are responsible for this for this when the one eyed son of the manse signed the Lisbon treaty while he thought the cameras weren't filming.
It always makes me seethe when I hear the chair-person of the PAC (Labour) talking about morals - but doesn't mention her own familys tax dodging business.
That old adage springs to mind: "You show me a socialist, I'll show you a hypocrite"
> I think you'll find the multi-millionaires of Liebours front bench are responsible for this for this when the one eyed son of the manse signed the Lisbon treaty while he thought the cameras weren't filming.
No, this one is all down to Little Gideon. Apparently he noticed that tax was hard and hired some lovely chaps who'd been to Eton to have their lackeys do it for him. Now tax law is written by the big four tax avoidance consultancies. Seems crazy but it's true.
This is not to say that Labour were any better - they weren't. But a tax policy written so that anyone with enough money can pay PwC et all to avoid paying any of it is a very Tory policy indeed.
Roy-Chowdhury said: "It's a bit like reporting yourself to the police and then having to defend yourself."
He added: "It seems strange that multinationals would have to report themselves and the the onus is on them to defend their [tax activities.]"
My understanding is this is exactly what self employed/small business owners/contractors have to do whenever they fill in self assessment/tax forms and are trying to claim a reduction on their taxable income (ie expenses).It must be so hard for this struggling multinationals that only employee a few hundred accountants and lawyers to do the same.
Self declaration is the basic principle of taxation since the beginning.
Then you get audited and if your declarations are incorrect, you're screwed.
Personally I think tax auditors should be freelance and they should get a percentage of any extra revenue they extract from their targets. They would target the big fat estates and leave us little buggers mostly alone.
"Personally I think tax auditors should be freelance and they should get a percentage of any extra revenue they extract from their targets. They would target the big fat estates and leave us little buggers mostly alone."
Counterpoint to that argument: Witchfinders.
There's a bloody good reason that auditors don't get a percentage of those they accuse.
"It's a bit like reporting yourself to the police and then having to defend yourself."
No. It's more like a person with a record for burglary being stopped by a policeman in an area where several properties have been burgled. Then being asked by the policeman, "are you carrying any tools?". Then having to justify to the police why he has a crowbar in his pocket.
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Our GST gets taken by companies for products and services and sent to the tax office.
But surely the efficient place to collect tax is at the bank transfer.
The tax office wants to collect where 'profits' are generated, which will only cause loop holes.
A very small tax on both the debt and credit side of all transfers, will get tax from everyone for everything.
Overseas transfers will pay tax in the purchasers country and the sellers country.
Get rid of all other taxes and adjust the size of transfer taxes.
No more tax deductions, everyone pays a fair tax.
We could probably sack 99 % of our accountants as well !!!!!!
"But surely the efficient place to collect tax is at the bank transfer."
On the contrary, that would be a most inefficient way to tax anyone.
Far from every bank transfer represents a payment for goods or services. There are loans and repayments, prefinancings and coupons, intracompany transfers, collateral transfers, margin calls.
You want the bank to act as a real time taxman trying to understand exactly which accounting category an individual transfer represents and collecting all the ass-covering documentation? Do you realise how much banks will charge you on top of any "tax" that they collect.
Not even in the heyday of the USSR has such a stupid bureaucracy been imposed on an economic system.
I used to spend around £50k a year on Google Adwords, although these days its nearer £20k. I think that the online VAT return should have a box on it where you declare your quarterly spend with Google Adwords. The HMRC could then work out exactly how much tax Google should pay if it were just UK based, and politely request that amount from them. If they refuse to comply they could get UK ISPs to "filter out" or just disrupt their incoming adwords ads, at least until everything goes https... I'm sure GCHQ could help them with that.
If each member state of the EU adopted my suggestion they'd all be better off, except possibly Ireland. Maybe it should be an EU law, or we shouldn't be in the EU. I think it would work fine either way. Google should be a good citizen and pay taxes in the countries they earned the adwords revenue - as should Facebook ads & Bings ads. It's not as if paying the correct tax is going to bankrupt them. It's just greed...
@ Tim Rustican
"Google should be a good citizen and pay taxes in the countries they earned the adwords revenue"
Would the same argument extend that you should be a good citizen, work hard, earn money and then suffer every money grabbing mafia boss/candidate trying to steal it from you while trying to imply that you are the criminal? Trying to hold on to the fruits of your labour is just greed
"I see a flaw."
They are only not making the profit in this country because they are transferring it elsewhere.
So this is pretty easy to enforce - if they turn over 1 billion in the UK, but make no profit due to transferred costs, you look at the profit they make where the money goes - usually a tax haven. If they make £100 million profit per £ 1 billion turnover across the whole company, then you can tax them on the same profit level in the UK pro rata by turnover. Plus say a 100% penalty if they don't declare it themselves...
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