back to article How El Reg predicted Google's sweetheart tax deal ... in 2013

“Google will shrug off this week's tax woes with a flick of its robotic tail, and politicians and tax campaigners will declare 'success'," or so I predicted here not two years ago. The ad giant would make a symbolic gesture on paying UK corporation tax, and we’d all be told to go home. For once, I’m afraid, I was almost …

  1. WatAWorld

    Corporate tax is paid for by overpaid employees and shareholders, only overpaid employees.

    Corporate tax is paid for by overpaid employees (CEOs, VPs, marketing types) and shareholders.

    The Proof:

    Imagine Google was taxed fairly.

    Whose income would go down?

    Workers paid fair-market wages? No, because they'd leave and find other jobs.

    Workers paid excessive wages? Yes, if they leave they'll be paid less, so they are willing to stay on at lower wages until their wages reach fair-market levels.

    Shareholders? Shareholders are stuck with the balance, what cannot be recovered by reducing wages that exceed fair-market levels comes from shareholders.

    1. Chris Miller

      Re: Corporate tax is paid for by overpaid employees and shareholders, only overpaid employees.

      Or you increase prices. You're assuming that Google will be the only ones so taxed - in reality, a universal corporate tax will either drive down costs (mainly wages*), drive up prices (ultimately falling on consumers) or reduce profits. BTW - do you have savings or a pension? Congratulations you're a shareholder.

      * Fair-market wages are determined (or, at least, limited by) how much value each worker adds to the company. If you reduce the net value by imposing a new tax, this number reduces.

    2. Anonymous Coward
      Anonymous Coward

      Re: Corporate tax is paid for by overpaid employees and shareholders, only overpaid employees.

      I'm still vague on why corporate tax exists. Surely there is only a profit to be taxed when some cash hits someones pocket. And that tax is being paid. Its just a question of where its paid if the shareholder lives in the US and the money was earned in the UK.

      If ,say, googles profit was earned half and half UK / US , then the share holder would change from paying all tax in US to half and half - net result no difference for him.

      what am i missing?

      1. Smooth Newt Silver badge

        Re: Corporate tax is paid for by overpaid employees and shareholders, only overpaid employees.

        I'm still vague on why corporate tax exists. Surely there is only a profit to be taxed when some cash hits someones pocket.

        There is a lot more you can do with a profit other than pay a dividend. You can, for example, spend it on capital assets such as buildings or land or even just buy back some of the company's shares. Shareholders still gain because their shares are now more valuable even if they haven't trousered any dividends.

      2. Anonymous Coward
        Anonymous Coward

        Re: Corporate tax is paid for by overpaid employees and shareholders, only overpaid employees.

        <i>If ,say, googles profit was earned half and half UK / US , then the share holder would change from paying all tax in US to half and half - net result no difference for him.

        what am i missing?

        </i>

        It changes who gets to spend the tax. Some would stay in the UK to help with our deficit, rather than disappearing to Ireland/Luxembourg/etc.

        1. asdf

          Re: Corporate tax is paid for by overpaid employees and shareholders, only overpaid employees.

          Well at least you point the finger at the right parties and don't blame the US. Due to us having one the higher corporate tax rates at least on paper we are about the last place multinationals end up storing their cash even though as a very large market they generate a lot of it here.

    3. IHateWearingATie
      Boffin

      Re: Corporate tax is paid for by overpaid employees and shareholders, only overpaid employees.

      Erm, not what economists think:

      http://www.adamsmith.org/wp-content/uploads/CorpTax8.pdf

      Of course, you may see the adam smith institute as a neo-liberal capitalist running dog, intent on crushing the workers on behalf of the one percent / evil bosses / tories / white cisheteropatriarchy (delete as appropriate) so continue as before if you wish

  2. WatAWorld

    It definitely is a sweet heart deal

    Google definitely has a sweet heart deal. It has gotten off dirt cheap and I expect the only strong clause in the agreement is the clause preventing any future government going back to collect the correct amount of tax.

    If companies deserve to pay as little tax as Google, then reduce the tax rate for all companies.

    Why should individuals and other companies be paying taxes to support the technology, legal system, science, and education that Google takes huge advantage of.

    It is like the UK's unique tax exemptions for your "non-doms". No sensible country provides government services for next to nothing, and the only senseless country that does is the UK.

    Taxation needs to be fair or people and companies will start evading taxes. We'll become like Greece.

    1. Anonymous Coward
      Anonymous Coward

      Re: It definitely is a sweet heart deal

      You are slightly missing the point. Or not slightly.

      It is a "going once, going twice, going thrice..." deal. Last train before the transatlantic partnership.

      After that is driven down our throats, any attempts to backdate a tax on a corporation or even change the tax regime will most likely result in the corporation invoking the legal procedure against the state envisioned in this treaty.

      The result was seen in Eastern Europe several times over the last decade. Conditions allowing arbitrage or lawsuits against the state similar to the transpacific and transatlantic partnership were ratified during the late 90-es as part of various "investor confidence" packages. The same period coincided with rampant tax evasion and backdated tax bills upon discovery. Some of the affected "businessmen" claim that the backdated tax bills are politically motivated and that may quite often been the case. However a backdated tax bill is a backdated tax bill, even when it is used for political purposes. If you do not pay it, you are declared bankrupt and your assets are auctioned. There is bugger all you can do about it - it is the nature of sovereign rights by the state and you being its subject. Unless you can sue the state _OUTSIDE_ the state in a "neutral" third party which was rigged to fit your needs.

      Which is exactly what for example Yukos is doing at the moment under the now defunct predecessor to these treaties. To the tune of 64 billions. That is the biggest case, but it is not the only one (and not just against Russia - there is a reason why all countries who signed to these arbitration procedures have exited them by now).

      This is also why there are discussions between Apple and Ireland, UK and Google and so on right now and there will be a sweetheart deal in every case. 'cause if it is not, once the treaty is in effect there will be no way whatsoever of reclaiming these taxes.

      It is a "Going once... Going twice... Going thrice... deal".

  3. This post has been deleted by a moderator

    1. Gordon 10 Silver badge
      FAIL

      Which article did you read?

  4. Dr. Mouse Silver badge

    Corporation tax

    Corporation tax is, in my opinion, one of the most complicated areas of tax, and should be abolished.

    My reasoning:

    Companies are legal entities with, often, an incredibly large amount of resources. Their mandate is to generate as much profit for shareholders as possible. So, if they can spend £1m (say) on accountants, and those accountants find a way to work the profits so that they save £2m in tax, they are legally required to do so*.

    On the other hand, individuals (normally) have much more limited resources. Until you reach the upper echelons, the cost of hiring a accountants to find the most efficient way to legally avoid tax outweighs the potential savings.

    My solution would be to remove corporation tax entirely (which companies will pour money into finding ways out of) and tax individuals when those profits leave the business. This would end up leaving more money to get into the hands of people, and would reward companies who chose to invest in their business. It would cut down on the cost of accountants for businesses, too.

    This argument is not based on morality, but pragmatism. The moral view would be that companies are making lots of money, so we should tax them. My pragmatic view is that they will always try to find ways to avoid paying that tax, so don't even bother trying.

    * As long as it will actually net them bigger profits. Google, in this instance, is playing a PR game.

    1. LDS Silver badge

      Re: Corporation tax

      It would work if and only if companies were forced to distribute profits to someone who in turn would pay the taxes. But they are not forced, so money can stay in company safes. They could also try to find a way to move those profits (just like they do now) so they are not taxed - or try to make a deal with governments to pay very little taxes on them when used - just some did with money in tax havens.

      Moreoever, you should extend it more, and dont' tax individuals until their spend their money - just like the companies. It looks wise, but it is not. The last Noble prize shown that income and expenses are not a simple function, and you just risk to move the bulk of the tax burden to lower incomes (something that is very appealing to most economists, who happens not to be in that category...). And I do not believe companies will pay better wages - money will just "trickle up" - hey, they entered in an illegal wages-fixing schema in California despite their profits - and the leaders of the schema were the most profitable companies, while one of the few who denounced it was the CEO of the ailing Palm. Don't understimate the power of greed.

      Moving taxes to properties may be dangerous as well - while if your wage declines taxes do as well, leaving some breathe space. If you tax properties, they will stay the same regardles of your actual income - and could put you in dire positions and unable to recover.

      And the idea you don't tax someone because it has enough resources to dodge you is dangerous, you mean only those weak enough and without those resources get taxed and pay for everybody else? Throw away two hundreds years of trying to build a liberal democratic society, were laws are equal for everybody?

      Look at what happend in France before people got tired of nobles not paying taxes because they could, and heads began to roll...

      A welfare state does cost. Someone has to pay for it. Charge too much the lower classes (including a lot of the middle one), and working may be not so much better than living of subsidies - especially if wages are also kept low by offshoring or the like. The other option is to let people pay for their own welfare, so they will be forced to ask much higher wages from their companies.

      Just, companies relying on a welfare they don't want to pay for to keep wages low enough are something I don't find appealing...

      1. Dr. Mouse Silver badge

        Re: Corporation tax

        It would work if and only if companies were forced to distribute profits to someone who in turn would pay the taxes. But they are not forced, so money can stay in company safes.

        I do not believe this would happen. A company exists to make profits, and money sat in a bank account is not making a profit. It is more likely it would be invested, barring a reserve (like an emergency fund, or a future investment fund). Even then, it would eventually be either invested or moved to an individual.

        As for structures which make it fall over (ownership of/by other companies), you could state that these rules apply only to UK companies, and treat a non-UK company as an individual, taxing on transfer of the capital. Also, any owners/shareholders of a UK company must be registered for UK tax and pay tax on their dividends.

        The idea is not without it's flaws, but it is simpler and more likely to actually raise tax.

        1. Anonymous Coward
          Anonymous Coward

          Re: Corporation tax

          I wonder if it's possible to charge corporation tax to multinational companies on a proportion of their revenues?

          Eg: Revenues of £1m in UK, worldwide revenues of £10m, your UK profits are considered to be 10% of your global profits.

          Any takers?

          ( I imagine the USA would object, being the home of a lot of multinationals, but it's just a thought )

      2. Schlimnitz

        Re: Corporation tax

        But... who is going to invest in a company that never gives them their money back?

    2. Roger Greenwood

      Re: Corporation tax

      I like the idea but it is too simplistic. Even a humble SME could be owned by another company, and another etc. Using different countries with different legal/tax systems. That is the problem and why "tax havens" exist.

      1. SEDT

        Re: Corporation tax

        A corporation can 'live' in a tax haven. Not many shareholders can. Profit has to eventually find its way back to the shareholders, so taxing the shareholders in their country of residence is the most effective way of taxing company profits.

        Yes, I know some super-rich people will still manage to dodge this. You can't shut every single door. Just let them build their super yachts, have multiple homes and vanity projects. These things, at least, employ normal people.

        As it stands corporation tax is a bit of a botch and in the end it is, as always, us that pay it.

    3. The Dude
      Big Brother

      Re: Corporation tax

      Pragmatism is all very well and can be useful when there is no principle operative.

      But if we want to do this right, then we need to start thinking seriously about abolishing taxation - period - full stop.

      Why anyone believes that allowing government to extract money from anyone is ever going to accomplish anything good - is a mystery to me. Government, like any other law-abiding organization in society, should be required to earn its income honestly by delivering services that people value sufficiently to pay for. This business of the "divine right of kings" to plunder and tax is a barbaric anachronism that only serves to fuel incompetence, corruption, greed and waste.

    4. h4rm0ny

      Re: Corporation tax

      >>"So, if they can spend £1m (say) on accountants, and those accountants find a way to work the profits so that they save £2m in tax, they are legally required to do so*."

      Is this actually so? I hear it repeated often, but it seems unfeasible. Who is to say that something is always the right decision for a company even if it is not the most immediately profitable? And what legal obligation does a corporation have to its shareholders to maximise profit - they can choose to invest or sell their shares as they wish, but if they do not have controlling interest in the company can they really sue it simply for doing something they don't like?

      1. Dr. Mouse Silver badge

        Re: Corporation tax

        Is this actually so? I hear it repeated often, but it seems unfeasible.

        Ah, actually I'm not sure. I have heard it repeated many times, and accepted it, but from http://www.taxresearch.org.uk/Blog/2011/10/24/companies-do-not-have-a-duty-to-maximise-their-profits-or-to-avoid-tax/:

        172: Duty to promote the success of the company

        (1)A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to—

        (a)the likely consequences of any decision in the long term,

        (b)the interests of the company’s employees,

        (c)the need to foster the company’s business relationships with suppliers, customers and others,

        (d)the impact of the company’s operations on the community and the environment,

        (e)the desirability of the company maintaining a reputation for high standards of business conduct, and

        (f)the need to act fairly as between members of the company.

        (2)Where or to the extent that the purposes of the company consist of or include purposes other than the benefit of its members, subsection (1) has effect as if the reference to promoting the success of the company for the benefit of its members were to achieving those purposes.

        (3)The duty imposed by this section has effect subject to any enactment or rule of law requiring directors, in certain circumstances, to consider or act in the interests of creditors of the company.

        It seems the duty is to promote the success of the company. However, for many the success of the company is defined in terms of profit, balance sheet and PR. Legal minimisation of the tax bill, where it doesn't impact on PR, would be almost foolish to let slip, and could be considered a dereliction of this duty.

        As for "The Dude":

        But if we want to do this right, then we need to start thinking seriously about abolishing taxation - period - full stop.

        Really?! If that were the case, how would they pay for essential services? Police, fire service, courts of law... Would you suggest that everyone has to take out an individual contract with a security service to protect them if a crime is committed? What if they can't afford it, do they not get justice? Does the criminal walk free?

        What about roads and other essential public infrastructure? Do we say "No, you can't leave your house because you haven't paid the fee to this company to walk on their pavement"?

        It is barmy to believe that, in a civilised society, we could actually manage without a central authority contributed to by all (AKA Government and Taxes).

  5. Anonymous Coward
    Anonymous Coward

    Anyone actually heralding this a "success"?

    Yes, you predicted the nature of the deal quite correctly, which isn't entirely out of the blue as this has happened in other similar cases in the past. However, I don't get any impression that any real-life campaigners (the ones dismissed as being in it solely to bolster their moral cachet) are actually declaring "success" on this at all.

    It seems to be being almost universally considered a pennies-on-the-pound deal for Google (which we're both agreed that it is). But something that "[has kept tax campaigners] satisfied with [a] symbolic, largely meaningless gesture?" Doesn't look like it.

    Besides which, if the symbolic victory Osborne is giving them is being done in an intentionally and maliciously unsatisfying manner as suggested, I'm not sure how that ties in with the original prediction that this would be done to keep the allegedly shallow and hypocritical campaigners happy?

    At any rate, I'm not remotely surprised by the outcome.

    1. Dan 55 Silver badge
      Black Helicopters

      Re: Anyone actually heralding this a "success"?

      And there are those that suggest it undermines the OECD's attempt to sort out international tax arrangements.

      1. Charlie Clark Silver badge

        Re: Anyone actually heralding this a "success"?

        And there are those that suggest it undermines the OECD's attempt to sort out international tax arrangements.

        It's just not trying very hard, is it? ;-)

        Deals like this, which are driven as much by the US FATCA legislation, as anything else will probably help establish any OECD policy.

  6. Rol Silver badge

    All aboard the gravy train...hey, not you!

    "Hello, please come in and take a seat Mr Google"

    "Thank you, Mr HMRC"

    "Now, I would like for you to have a quick read of this"

    "mm, yes, yes, err, yes"

    "Do you notice anything about it?"

    "Well, err, I can't say that I do"

    "I shall enlighten you. It is a comprehensive list of all the people who we are not allowed to chase for tax and your name isn't included"

    "Why ever not?"

    "Well, you're not British, you're family isn't mentioned in the Magna Carta and you have not been invited onto the gravy train"

    "Well can we buy a ticket?"

    "Err, no! You see, you are now too high a profile. The media have got their teeth into you and frankly, it's distressing the hell out of all those on the list"

    "Why should they care?"

    "Obviously, if we can't come to a satisfactory solution to this and are forced into closing all these archaic loopholes, then thousands of honest law abiding citizens would end up having to pay a fair amount of tax."

    "I see your dilemma"

    "Yes indeed. That is why we have called you in. You see, those mentioned on the list are willing to redirect a small fraction of their annual tax avoidance into your revenue stream on condition you pay that back in tax and thus stop the media from digging any further"

    "Well, on that basis, I think we can make a deal"

    "Great, just sign here. Ahem, In blood if you don't mind"

    "What!?"

    "Our master will not have it any other way"

    "What! David Cameron insists on blood?"

    "Mr Cameron? The Master? No, he's just a loyal servant of Mammon"

  7. Charlie Clark Silver badge
    Thumb Down

    Very partial piece

    If I understand the logic correctly, the argument is that there should be no tax on corporates because it acts as a drag on investment, payroll taxes should be enough. And Amazon is held up as a shining example?

    So, let's look at Amazon: up to every legal trick in the book to its tax exposure. It's also up to every trick in the book to squeeze suppliers and employees. Minimum wage, we've heard of it. How does this encourage investment exactly. And then there is the not inconsiderable issue of preferential treatment of capital gains over income (share buybacks over dividends).

    Now, I'm actually a big fan of Bezos' digital stuff but that does not mean I endorse his business practices.

    Different forms of tax exist because no one form is particularly efficient.

  8. Keith 12

    Excellent article - thank you.

    1. DF118

      Apart from his central premise characterising tax campaigns as being entirely made up of virtue signallers who will let Osborne and Google away with "an easy win". Yeah, apart from that, it's excellent.

  9. m0rt

    @Andrew - for your next foretelling..

    ...what shares you reckon are worth buying?

  10. Wiltshire

    Tax avoidance is legal, tax evasion is not.

    U2, the Rolling Stones, Amazon, Facebook, Google, Starbucks, Subway, Vodaphone, etc, didn't get where they are today by not knowing the difference. If a Dutch Sandwich (tax avoidance) is good enough for them, it's good enough for me, and the good business-folk of Crickhowell in the Brecon Beacons as well.

    Much recommended as market research:

    BBC2 "The Town That Took on the Taxman"

    http://www.bbc.co.uk/programmes/b06ygl19

    Can we predict that Apple & Co will leave Ireland in 2019?

    https://en.wikipedia.org/wiki/Double_Irish_arrangement

    1. DF118

      Tax avoidance is legal, tax evasion is not.

      If I had a pound for every time I read that phrase in the comments to a piece on corporation tax, I'd have a hell of a lot of evading avoiding to do.

  11. allthecoolshortnamesweretaken

    The next logical step: Apple, G00gle, Amazon, etc pp team up and buy, say Greece (or a part of it, nice islands), declare it a sovereingn state and set up their HQs there. They could call it Corparatistan.

    1. Joe Gurman

      Greece should be so lucky.

    2. ratfox Silver badge

      Well actually no, that wouldn't work. Because countries that do not play nicely and make corporations pay a reasonable amount are not invited in the EU. It's taken a little while, but Ireland is actually getting in trouble for the generous tax deals it has offered big corporations. It is considered an illegal subsidy. The rules kind of work, it just takes a while.

  12. censored

    Stop taxing me, then

    You claim that Amazon don't make a profit because all of the cash goes back into Amazon (true, if cynical on their part).

    By that logic, I shouldn't be taxed either. Every single penny of my wage goes on housing, food, clothing, utilities, a car to get me to work and maybe a few hundred a year left for a holiday. I do not have any savings, and most months I end up with the same in my bank account (the edge of my overdraft) as when I started.

    By any measure, every single penny of my earnings is ploughed straight back into me as an economic unit. With no home, food, car or clothing I cannot continue in my job. Any luxury items I buy (which is few) are also ploughed back into myself because they make life a little more pleasant. A happier worker is a more productive worker (and I'm far more productive now than during the real poverty and misery years). Though I'm not in a position to spend frivolously, so all of my wage could quite rightly be described as going straight back into my existance.

    So why can a multi-billion dollar company plough it's money back into itself and claim no profit, when I cannot despite not making a profit?

  13. Anonymous Coward
    Anonymous Coward

    Strange times indeed.

    An Orlowski piece that I actually agree with. :O

  14. quattroprorocked

    Level playing field

    Is what people really want.

    At the moment the jurisdictional tax arbitrage games that multinationals plan means that they can have the same real costs as a small local business but magical lunacy like deciding that it's IP is in a Dutch Sandwich allows it to undercut the local company AND make it's profits go phut. (Not they do, they miraculously reappear in a tax haven).

    The Google deal has about as much to do with rigorous math as Jack's beanstalk has to do with careful gardening.

  15. Joe Gurman

    Slight error in arithmetic

    Wasn't May of 2013 a but under three years ago?

  16. Ptol

    Tax avoidance is really simple. avoid doing something that is taxed, and do something else that is not taxed. Working? that's taxed. Sitting at home on benefits? Well, its taxable, but the tax man never quite gets round to sending you the tax return?

    Accountants advice? Punch your boss!

  17. Marketing Hack Silver badge
    Stop

    I have no problem with Google/Alphabet making a bundle in the UK or elsewhere.

    But I want to see them taxed according to the law and due process. Getting together behind closed doors with the taxing authorities and coming up with some agreed-upon number that doesn't seem to have a basis in statute is a bad idea.

    Otherwise you move towards a situation where the taxpayer says "I'd really like to hold my liability to 100 million. Therefore, in consideration for your ingenuity in finding a way to get my liability to 100 million, please accept this gratuity of 10 million for you/your party/your charity."

  18. crediblywitless

    You just have to be big enough for your tax liability to be a negotiation rather than a calculation. If it costs a largely predictable amount to pay people to help you avoid tax, you just need to be big enough that that predictable amount is a small proportion of the tax you're avoiding.

  19. Anonymous Coward
    Anonymous Coward

    Next Prediction?

    Given your successful track record with predictions, please can you predict George Osborne being found dead from a coke overdose?

    1. Anonymous Coward
      Anonymous Coward

      Re: Next Prediction?

      Maybe he's a Pepsi man?

  20. Rol Silver badge

    Colonialism in all but name

    The very idea that an armada of off-shored companies could rake in a significant proportion of a county's GDP by using current taxtics is no different than when, as a nation, we ravaged the resources of those less capable of resisting us.

    We often look back with embarrassment at our nations exploits around the world, yet while current practice flies under a corporate flag we generally just ignore it, until that is, we're the nation less capable of offering resistance.

    And, just why are we incapable of resisting this drain on our resources, well, think, "good for the goose" and you might come to the realisation that we are just as embroiled in this dirty business and can't legislate against those disrupting our economy without adversely affecting the interests of our very own armada anchored teasingly just out of reach of HMRC, yet captained from the city of London.

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