Why would Google not pay as little tax as possible?

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Whoever is in charge of European tax governance, whether it is by the countries themselves or the European Union, is, well, crazy. They’ve made it entirely possible for pan-European companies to funnel back profits into EU jurisdictions which have a low corporation tax regime. And yet the press in each country bleats like a sheep, every time someone points this fact out.

Today’s controversey was that Google, which has around 90% market share of the UK search market and a large share across other European countries, will not pay any corporation tax on its £1.6bn advertising revenues in Britain. It has a network of subsidiares across Europe, all of them feeding back to its European HQ in Ireland where it does pay corporation tax. In Britain, corporation tax is levied at between 28% and 30%. Guess what? In Ireland it’s between 10%-25%. Had Google paid corporation tax in the UK it would be down £450 million. So, pray tell, why would they not work the system, legally, to pay the tax in Ireland?

Operations in London and Manchester have “administrative expenses” of £177m last year, and a wage bill of £70m. Google employs more than 800 staff in the UK, and says it makes a “substantial contribution” through payroll and other taxes. In the UK, Google also regularly holds events at its London HQ and recently held Google Zeitgeist in the UK at which government ministers spoke.

Google is not alone in this tax practice. For years – at least the last nine – Google and Microsoft have had their European “HQ” in Ireland, even if the bulk of their actual operations and personnel are spread across major European centres like London, Paris and Zurich. In that latter city, Yahoo! Europe, chose to relocate for tax purposes last year. Switzerland – it turns out – also has a low tax regime. Why is anyone surprised?

And yet the UK press and politicians, yesterday and today, have been up in arms that Google’s theoretical UK tax bill could have built hospitals and purchased helicopters for troops in Afganistan. Of course, being in the middle of a recession and a war suddenly makes this a story. But it’s not news.

Here’s an idea: Perhaps the people who control the tax laws should make it more attractive for innovators like Google, Yahoo and Microsoft to pay tax in the countries it has its biggest offices in? Indeed, even cutting edge startups like Spotify have HQ’d for tax reasons in Luxembourg. I don’t see the press castigating Daniel Ek for tax ‘avoidance’.

Everyone should stop being so naive.

  • http://www.mobileindustryreview.com Ewan MacLeod

    Excellent post Mike. It’s getting tiring reading the ridiculous tirades in the mainstream UK press.

  • http://www.nonsenselondon.com Rob Mosley

    While I agree the bleating is pointless, I don’t think your proposed solution is viable – if by “more attractive” you mean cheaper!

    In Britain, we have a high tax rate because we have a high level of public service. If we reduce it, commerce would get a boost but these services would have to be slashed accordingly.

    The real problem is with international tax regulation, which allows companies to generate huge profits in one market and declare them in another.

    We’ve been helping ActionAid campaign on this issue a lot this year; because as usual it’s the poorest countries who suffer most. (Although Google are not squirreling cash out of Bangladesh, to be fair to them!)

    These countries need tax incomes to pay for really important stuff, like fighting AIDS, and teaching kids to read. Why should they have to lower their tax rates if a company makes all it’s money using their natural resources (like bananas for instance)?

    Check out http://www.actionaid.org.uk/outlandish for a load more info.

    • moron4hire

      Without commerce, who will you rob to pay for your services?

      • itWilllBeOK

        Nicely put, moron4hire.
        But commerce needs resources to actualy work. In Google case that would be brains, mostly. And brains need to be educated first to be of benefit for Google. Education, however, is mostly financed by … you know what i’m getting at?

  • http://twitter.com/davidsmuts David Smuts

    Interesting post Mike. Incidentally there are other forms of taxation besides corporation tax which the UK siphons off Google and others. HMRC will take between 25-40% off their salary bill in personal income tax for its UK employees, add NI contributions to that and other forms of indirect taxation too.

    Let’s also not forget the UK has its own little tax havens like the Isle of Man, Jersey and Gibralter, BVI, Caymen Islands to name a few (although not technically part of the UK they are UK territories).

    The European Parliament has long campaigned for an EU wide corp tax structure, including bringing UK territories into line. We may not like it, but that is on it’s way.

  • Paul

    “For years – at least the last nine – Google and Microsoft have had their European “HQ” in Ireland, even if the bulk of their actual operations and personnel are spread across major European centres like London, Paris and Zurich.”

    I guess you’re implying that Google’s HQ in Dublin is a front, and that they actually do all their work elsewhere. The facts don’t support this. They may have 800 people in the UK, but they have 1100 in Dublin.

    • http://twitter.com/mikebutcher Mike Butcher

      No, I’m not implying it’s Dublin HQ is a front at all. Good luck to Ireland that it’s been savvy issues like tax! And clearly Google has an important centre there. I’m saying the UK can’t complain if it’s uncompetitive. Companies will go where the law lets them.

  • Bartek

    Well, how many people they employ in California and how many in Delaware, where they’re incorporated and where taxes are paid?

  • RichB

    Where do you think Microsoft pays most of it’s taxes? Not Seattle, WA.

    Nevada!

    • Ron

      Yea why is this any different than a US company incorporating in Nevada or Delaware for tax purposes?

  • John King

    The problem with Google doing this is not so much that it is avoiding paying tax in the UK on business largely transacted in the UK. As you say, lots of companies do this.

    The problem is that Google tells us that its motto is ‘don’t be evil’: ie., ‘be good’. Having a suspicion of tax avoidance around your company, in the current climate, is definately not being good. And it could hit Google in the long run. It’s just Microsoft 2.0, right?

    However, given the state of the Irish economy, they probably need the money more than the Brits…

  • nraynaud

    Just as a matter of fact, you can’t evade taxes that easily, you have to have your *real* headquarter in the country, that means where the work orders come from. A classic proof of a fake HQ, is when on a regular basis faxes containing orders arriving to employees don’t come from the declared HQ country.

    But as my law prof used to say (he was a judge in a business court) : “this is a new doctrine has the courage to really apply to it’s full extent” (when I asked about Jersey and Guernsey’s letterboxes). I think there is also a political matter in this : we decided to assemble 27 (or event more depending on what we really speak about) very different countries, we shouldn’t make too much war with our neighbors.

  • http://www.wasaweb.net/ wasaweb

    EU tax harmonisation, anyone? Most companies would avoid taxes, sorry look for tax optimisation, if they can. It’s not restricted to Google. Wasn’t a part of Grauniad’s parent company incorporated in the Cayman Islands?

  • Guy Bague

    Why does this surprise you? Look at the makeup of Google Holding’s Ireland’s management team – how many are qualified accountants?

    Irish corporation tax rate is 12.5%. Does anyone in Google Ireland actually work on developing products? Do they fuck.

    Work it out.

  • http://www.PAWtition.org Britanny Cripliver
  • Andy

    Guy Bague:

    Irish corporation tax is 12.5% for the first 10 years after which it reverts back to the standard 23%.

    900 of the staff in Dublin work in R&D and are all software engineers. 300 work in customer support with the remainder in accounts and administration.

    http://www.independent.ie/business/irish/google-unit-back-in-profit-as-turnover-soars-1980704.html

  • ted

    The Brits have 3 choices?
    1. Keep the status quo.
    2. Change the laws so Google has to pay more taxes. I suspect Google would reduce its UK workforce if this happens, amongst other unpleasantness.
    3. Lower the UK tax rate. The UK would get no more direct taxes from Google, but might see an upsurge in employment from Google and those companies that would cater to Google.

  • Sergey B

    Why wouldn’t Google pay as little tax as possible? Well let me think, how about because they made a solemn promise not to be evil once upon a time? They insisted over and over that they weren’t going to act like other exploitive corporate pigs and do the right thing.

    Of course they turned out to be just as greedy and spineless over the years (fingering those courageous dissident bloggers in China comes to mind) as Microsoft or GM. This is just the latest example of how full of it they’ve been ever since they went public.

  • Jon Galt

    Those agreeing with this cannot then complain when the likes of Merril Lynch (well, what was Merril Lynch, that is now BofA-ML) won’t pay any UK tax for 10+ years because of losses incurred in 2008 that were funneled through to their European HQ (London)

  • http://www.ayomedia.co.uk Rob

    Cant say I entirely agree with this post. Most companies do not have the luxury of picking which countries to setup their HQ’s.

    Yes it makes sense for Google to do this, but in all fairness they should be taxed on the level of trade they do in each country.

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  • http://www.dexmo.com Patrick DAlton Harrison

    @Rob
    Thats right.
    Pay tax in the country where you make the money.
    Surely the EU could legislate for this.

    Gives me a warm fuzzy feeling to know that we are all subsidising Google, MS and others.

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  • Marcus Greenwood

    I don’t really see this as ‘evil’. It’s simply the best thing to do business-wise within the system that we’ve created. That is: public companies are always under pressure because the shareholders (probably many people that read TechCrunch in the case of Google) always want the companies that they own to make more profit – so that their shares go up in value. Therefore it’s in the shareholders’ interest for such companies to pay less corporation tax.

    It generally gets to a point where it makes sense for large companies to think about basing themselves in countries where they pay less corporation tax for this reason. Whether Google is purposely doing this is up for debate. Yahoo certainly did in moving its European operations to Switzerland.

    I agree that HMRC should make the UK a more attractive place for business by lowering corporation tax (or something else) but they’re stuck in between a bit of a rock and a hard place at the moment, particularly with the fallout from the banking crisis and therefore public opinion probably not being in favour of giving further ‘breaks’ to hugely profitable companies such as Google and Microsoft.

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  • b.longhill

    absurd…all your chatter about how these companies owe you anything…they owe you nothing. However I will say this..that lowering taxes in every way will ultimately be the last form of competition left. They come and cause jobs, and you want to steal yet more. Taxes should be 10 percent max, and go “down” from there on whatever you create.

    they owe you nothing, and govt’s should be halved, all of them.

  • http://www.redoaktaxrefunds.ie john

    great debate all!

    though I don’t understand talk of a company ‘should’ pay tax when they don’t need to.
    The company’s primary responsibility is to the shareholder. It’s not in the shareholder interest to pay loads of tax. the company takes action to reduce it’s taxbill. that’s it.

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