Why would Google not pay as little tax as possible?

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.