back to article Five reasons why the Google tax deal is imploding

Today, the UK's tax deal with Google – or rather, corporate parent Alphabet Inc – looks worse than ever. Here's why. 1. Google avoids Osborne's 'Google Tax' Remember the Diverted Profits Tax? Announced in 2014, the DPT was designed to “deter and counteract” companies that “seek to avoid creating a UK permanent establishment” …

CPU

Anyone remember that David Cameron's former director of strategy Steve Hilton is married to Google's head of comms Rachel Whetstone,. Now we can see where this has led. I'll have a pint of Old Crony please.

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(Written by Reg staff)

She left ages ago, for Uber.

http://www.theregister.co.uk/2015/05/14/rachel_whetstone_quits_google_for_uber/

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Anonymous Coward

2. Wait. You paid… how much?

How much of that was EARNED within UK physical borders??? A very tiny proportion I suspect.

You would have to be a total retard to not think every country on the planet where Google have an internet presecence isn't thinking they own tax on the entire sum

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Happy

Damit

Osborne has made me agree with Andrew Orlowski, I hate you Osborne!!!

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Re: Damit

> Osborne has made me agree with Andrew Orlowski...

No, I think tabloid misinformation has made you agree with Orlowski.

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"Google - search doesn't to be taxing."

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You forgot the 'need'. But I caught your drift.

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It's not who you know...

...it's who you pay.

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So are they breaking the law or not?

I thought Google's dealings were, while naughty, not technically illegal. So why should either the UK or French governments get another penny out of them, without actually changing their laws?

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Re: So are they breaking the law or not?

I thought Google's dealings were, while naughty, not technically illegal.

That depends on how you define and treat transfer pricing. Under most international agreements and UK domestic law, transfer pricing to transfer profits across borders is illegal. And that's the problem, HMRC are quite happy to harass SMEs and individual contractors, but they've been curiously uncurious when it comes to investigating Google's trading arrangements, or Starbucks' bean purchasing. Anybody foolish enough to believe Google et al when they maintain that their arrangements are legal and they make little or no profit in the UK needs to ask themselves why these companies report multi-billion dollar UK profits to their shareholders.

If our government were not such a bunch of retards, and HMRC had some talent, they'd have nailed the big corporate tax dodgers, just like the French appear to be doing.

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Re: So are they breaking the law or not?

Reading Tim Worstall on this topic is very interesting-

http://www.forbes.com/sites/timworstall/2016/01/24/opposition-to-googles-185-million-tax-settlement-is-driven-by-three-economic-delusions/#7590e2b555a0

http://www.forbes.com/sites/timworstall/2016/01/26/if-even-a-tax-qc-is-getting-googles-tax-deal-wrong-then-what-hope-for-the-rest-of-us/#6c38a3e16b8d

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Re: So are they breaking the law or not?

He still hasn't explained how, if corporation taxed were dropped and a formula found where employees were taxed the equivalent, if the employees would be happy with 50% tax (or whatever high rate it is) on their wages.

Because no international company ain't going to raise the wages of their UK employees just so it's easier for HMRC to collect it.

Big muktinationals don't share everything with their employees, they sell high value goods and build up a warchest.

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Re: So are they breaking the law or not?

So they won't have to pay billions when the EU will declare their tax evasion illegal. They will say "we have already pay for all the past years"

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Re: So are they breaking the law or not?

No-one actually knows. Until you take it to a tax tribunal, appeals and then potentially Judicial Review (all at vast cost/profit to m'learned friends) all you've got are opinions of varying levels of mendacity.

Unless you're prepared to threaten retrospective legislation there is the real possibility of going after Google for a lot more money, losing and getting nailed for both your own legal costs and theirs.

This sort of law is essentially Poker and HMRC vs. Google is a no limits game between the highest of high rollers. Such players generally avoid each other for the very good reason that it is too risky and rarely profitable. The "correct" way to play is to get into games with opponents (SMEs) who can't match your resources - then you can buy the game with a big bet and a bluff.

Tax law has damn all to do with finding the truth, being fair or punishing cheats (that's what Criminal Law is for). It is about efficiently hoovering up cash for HMG. That means targeting weak opponents and staking as little Government cash as possible on each hand.

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Anonymous Coward

Re: So are they breaking the law or not?

It is impossible to close all the loopholes and trying to just makes tax more confusing. For this exact reason using technicalities to not honour the spirit of tax law used to be called tax evasion and punishable by harsh penalties.

Gov are only letting them get away with it now because they and their chums are using the same loopholes to avoid paying their fair share too. If they had any backbone at all they could beat them at their own game and penalise every tiny mistake in their accounts to get the cash out of them. This constant scaremongering that they will ditch the UK and take their business elsewhere is nonsense because the UK public are their product.

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Re: So are they breaking the law or not?

The government should just give up and ask Google how to fix the tax laws. They obviously know them better, and have the brains, data, time and tech.

The funny thing? Google would probably, actually, genuinely, try and fix the tax laws, because at this stage of their development, they really do still like fixing things.

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using technicalities to not honour the spirit of tax law used to be called tax evasion

No it didn't, it was/is called tax avoidance and it has always been legitimate. The difference is primarily one of intent. If you honestly and reasonably (i.e. not culpably irresponsibly) believe you've found a technical ruse to avoid paying tax then that's legal. If you're wrong then the worst you can generally expect is a retrospective bill (with interest). Tax evasion is dishonestly misrepresenting your affairs to reduce or eliminate your tax bill and can land you in jail. Mistakes are not fraud and being wrong doesn't necessarily make you guilty.

The Government is not allowed to win with the argument: "Yeah, yeah whatever! It doesn't matter what Parliament SAID, what they MEANT was...". Damn good thing too given the abuses it would lead to.

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Anonymous Coward

Re: So are they breaking the law or not?

This.

People just don't get that those with moderate to deep pockets will run rings around tax laws, and that tax laws are made deliberately complex to permit this. I don't know about the UK, but here in the US the mere definition of "income" gets incredibly technical when you start dealing with tax attorneys.

In representative governments, income taxes will always primarily fall on those at the middle of the income bell curve - those at the low end don't have money anyway (well, they do get nailed with regressive VATs / sales taxes and with monetary inflation), and those at the high end aren't going to have their feathers ruffled too hard because that's where campaign contributions and large piles of graft originate. This will not change any time soon, because politicians enjoy graft - why else take a ridiculously underpaying (compared to similar management positions) crap job that you have to spend piles of time and money reapplying for every few years?

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@codejunky - Re: So are they breaking the law or not?

> Reading Tim Worstall on this topic is very interesting-

Reading Tim Worstall in Forbes is just like reading him in El Reg. If his arguments are so clever and cogent, why does he have to continually resort to ad hominem sneers?

Take his conclusion: "who would you rather get your public policy from? A politician, an accounting professor and a suburban accountant turned one fifth of a professor? Or an actual world expert on the economics of tax systems?" He's using blatant NLP techniques and dodgy debating tactics (eg Poisoning the Well ) to denigrate those he disagrees with and influence the reader into accepting his viewpoint, but if his points and conclusions were as valid as he believes, such behaviour simply wouldn't be necessary.

He also claims that what Google et al are doing is "making us all richer", well, I'm sure it's making people like *him* richer, because they're the ones who can afford to own and trade shares in such big companies, but for the rest of us "little people", we're the ones who are seeing the money flow ever upwards and precious little of it tricking back downwards.

Still, that's not his (or Google's) problem, is it?

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Re: @codejunky - So are they breaking the law or not?

@ Graham Marsden

The bit that really jumped out of tims second article is the point that Google is using the rules which are in place specifically for this purpose to allow companies of all size (especially small) to trade internationally. Not something the big company can do that little ones cant but the actual purpose of the law designed to put all on a level playing field.

As for owning shares in big companies, that would be most people with a pension. The idea of them making us all richer is of the services and products provided (his usual explanation) and I dont think his sneers are any worse than your views of trickle down or 'little people' (shudder). But the good news is we are all free to our own opinions and can share them for discussion.

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Re: So are they breaking the law or not?

I haven't actually said the employees should be taxed the equivalent. Rather, I've said that the economic incidence of corporation tax is upon 1) The shareholders in the company being taxed and 2) All the workers in the economy applying the corporation tax.

It is a basic and known economic finding that the corporation, as a corporation, does not bear the economic cost of the tax: only people can do that. So, instead of taxing the corporation why not just tax people instead? Comes to the same thing in the end but it's rather easier to just tax people: as this story is showing.

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Re: @codejunky - So are they breaking the law or not?

I do the insult indirect to Murphy and Sikka. Up above Andrew has gone for the insult direct: "innumerati".

And you want to shout at me about it?

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Re: So are they breaking the law or not?

"transfer pricing to transfer profits across borders is illegal."

Yep,

"but they've been curiously uncurious when it comes to investigating Google's trading arrangements, or Starbucks' bean purchasing."

Nope. Starbucks first. They paid a margin of 20% on the cost of beans to their own subsidiary in Switzerland. Note that beans are cheap, maybe 5 p on a cappuccino.

So, what do the transfer pricing rules say? That a company must make sure that trade between two subsidiaries happens at market prices. That is, no special prices, no deal, to move money around in order to shift profits.

So, do you know any coffee bean brokers who are willing to buy, grade, sort, store, coffee beans with out being paid a margin to do so? Quite: so Starbucks *must* under transfer pricing rules pay some sort of margin to its Swiss subsidiary. Maybe 20% is too much. But for them *not* to pay a margin would be a breach of the transfer pricing rules.

Google is differently to do with the transfer pricing rules. The sales are made into the UK by Google Eire. That's Ireland's money, nothing to do with the UK. EU law that is, any EU company may sell anywhere in the EU and pay tax in whichever jurisdiction it calls home.

If Google had no office at all in the UK there would be no argument over this at all.

Google does have an office in the UK. The argument is not over the ad revenue again. It's over how much Google Eire pays Google UK for their engineering services and support. HMRC is saying that proper arms length transfer pricing would include a bit more margin for Google UK. Google has grudgingly agreed.

It's absolutely not about the ad revenue at all.

Now, maybe the law should be different and maybe it shouldn't be but that is the argument within the law as it is today.

Finally, the idea that the big boys get special treatment. Err, no. The loophole that is being exploited here is one that is available to every small company. I've used it myself, multiple times. So, I sell some Ruby/Rails programming services into the US from the Czech Republic, as I just have done. US revenue from US customer. Should I now file a US tax return, pay US taxes? Nope, I'm a small company, I don't have a base in the US. So, to keep the world simple, to allow small companies to actually export, Aw, Heck, just pay the tax at home, to the CR.

*That* is what Google is doing, exploiting the permanent establishment rules put into the law to *aid small companies*. And every small company that does export is doing exactly the same thing.

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Re: @codejunky - So are they breaking the law or not?

Much as I dislike Richard Murphy and Lady Hodge, your attack on them in the Forbes article seems a little dishonest.

What you quote them as saying here is that, given that the current tax system is based on taxing corporations on the profits they make in this country, the amount Google has paid is ridiculously low, based on a fair reckoning the actual profits they have made in the last decade from the business they operate in the UK.

Then you call them idiots, because you say we shouldn't be taxing corporate profits in the first place.

Even if you agree that the current system of taxing profits is fundamentally flawed, the fact remains that it is the system we currently have, and according to this system Google have paid too little tax, according to the spirit of the law of this system.

It is possible to believe both that the current system of taxing corporate profits is flawed in a modern world of globalised trade, and also that Google have dodged paying the tax they do owe under that system, thanks to their size, wealth and political connections.

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Re: So are they breaking the law or not?

@ Tim Worstal

Nice to spot you on this thread. Hope you dont mind me linking your Forbes articles, you made some interesting points I expect people are somewhat missing from the Reg (although it is nice to see Andrew Orlowski bring this topic to the reg).

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Re: @codejunky - So are they breaking the law or not?

> I do the insult indirect to Murphy and Sikka. Up above Andrew has gone for the insult direct: "innumerati".

Which others have already addressed.

> And you want to shout at me about it?

No, I want you to argue in a way that does credit to your points, rather than sneering like a teenager because you think that makes your arguments better.

You could also look up Ad Hominem Tu Quoque

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Re: @codejunky - So are they breaking the law or not?

Not quite, no:

"What you quote them as saying here is that, given that the current tax system is based on taxing corporations on the profits they make in this country,"

I effectively call them idiots because that is *not* how the tax system currently works yet they are claiming it does.

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Facepalm

Re: So are they breaking the law or not?

> *That* is what Google is doing, exploiting the permanent establishment rules put into the law to *aid small companies*.

Because Google is such a small company that they *need* to use those rules since they can't afford to operate without them...

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Re: So are they breaking the law or not?

>>Because Google is such a small company that they *need* to use those >>rules

No, its because Google is a publicly traded company and it *needs* to maximise profits (and therefore minimise taxes) in order to discharge its legally binding fiduciary duty to its shareholders.

You can trade off a higher tax payment against intangible goodwill but in the final analysis the deal has to pan out in the accounts as more value for Google shareholders.

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Re: "why not just tax people"

... or why not just tax company profits at source? That way Governments can get the money that they want without getting involved with complicated paperwork with a lot of bemused citizens.

If a government doesn't tax company profits at source the money will vanish and you will find , if you look really really hard, that a lot of it is no longer within the jurisdiction of the government, who will then get the money they want from the bemused citizens.

The "tax the people" system works really well for some and not at all well for a lot of bemused citizens.

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Anonymous Coward

Re: using technicalities to not honour the spirit of tax law used to be called tax evasion

They are selling the adspace to UK companies and showing the ads to the UK public, for profit. That is doing business in the UK, plain and simple. Whether or not it is legal may be up for discussion but it is clear that it IS a deception to avoid tax and by your own definition that is evasion.

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Re: "legally binding fiduciary duty"

@ Lysenko, is "legally binding fiduciary duty to maximise profits" the truth, the whole truth, and nothing but the truth ?

If it is, then the law needs changing.

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@Lysenko - Re: So are they breaking the law or not?

> Google is a publicly traded company and it *needs* to maximise profits (and therefore minimise taxes)

Corporations Don’t Have to Maximize Profits

There Is No Effective Fiduciary Duty to Maximize Profits

The nearest I can find to anything that backs up your claim is corporate directors are bound by "fiduciary duties and standards" which include "acting to promote the value of the corporation for the benefit of its stockholders." but that only says to "promote the value", not "maximise profits".

If you wanted to take the "maximise profits" to its extreme, then companies would be lobbying to be allowed to use slave labour because that's cheapest...

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Re: @Lysenko - So are they breaking the law or not?

@Graham

I covered that in the second paragraph. You can trade profit for goodwill (or other investment) so long as the final analysis works out as enhanced shareholder value. What you can't do is act to consciously diminish shareholder value in the pursuit of some other objective. Not without explicit shareholder approval anyway.

To voluntarily forego an available tax avoidance strategy the Board would have to be able to show that the goodwill accrued to the company is more valuable than the cash expended or that it is approved by the company's articles (e.g. investment squeamishness by the Church Commissioners).

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Re: @Lysenko - So are they breaking the law or not?

But companies already *do* use slave labour (or the modern equivalent thereof)... Think of any sports goods, clothing or electronics manufacturer with bases in the Far East... You can be guaranteed that Amnesty International and other human rights organisations will describe much of the labour used in said factories as virtually slave labour. So yes, they *are* maximising profit... they just contract out to be 'at arms length'.

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Re: @Lysenko - So are they breaking the law or not?

> What you can't do is act to consciously diminish shareholder value in the pursuit of some other objective. Not without explicit shareholder approval anyway.

[Citation Needed]

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Re: @Lysenko - So are they breaking the law or not?

Companies Act 2006 Pt.10 Ch.2 s.172 (1)

Clauses 'd' and 'e' have to be interpreted within the overall principles of the subsection.

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Re: @Lysenko - So are they breaking the law or not?

Which says (I quote)

"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"

There is *nothing* there that or the following sections which says *anything* about "maximising profits". In fact maximising profits could well contravene some of the requirements that follow, for instance "(c) the need to foster the company's business relationships with suppliers, customers and others" and "(e) the desirability of the company maintaining a reputation for high standards of business conduct"

A perfect example of this is how Tesco have recently been fined for deliberately delaying payments to suppliers in order to make their figures look better.

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Headmaster

Do no Evil

Do only Evil seems to fit the bill these days.

Seems big business doesn't want to pay taxes. But they will donate billions for a tax break!

pedant as he is as close to Moe Howard as the gallery has to offer... more icons please!

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Devil

Re: Do no Evil

Why do you think they came up with Alphabet as an umbrella company? Neatly gets round the whole Google - "do no evil" oxymoron

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Punter: "OK Google! Who was the greatest British Prime Minister?"

Google: "Waivey (your tax bill) Davey!"

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Anonymous Coward

H0rsePr0n

It's amazing what you can get a man to do when you have his search history.

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Mushroom

Re: H0rsePr0n

Shouldn't that be "PigPr0n"?

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Re: H0rsePr0n

So that's why whenever I search for 'blackmail' I get the wrong results!

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Think about it...

Whose money is actually going to HMRC with corporation tax? It's the consumers'. Corporation tax is just an indirect way of taxing the consumer. We're already paying income tax and NI on what we earn and VAT on what we spend, why do we have to pay a chunk of the before-tax amount as well?

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Re: Think about it...

I think you miss the point entirely.

Google has £100bn just sitting there. Earning interest. That money's already come and been taxed and been paid by the taxpayer. Google are just sitting on it. To tax it again doesn't hurt the consumer because it's ENTIRELY profit. Nothing else. Google have locked up BILLIONS of pounds of funds and are shipping them offshore, doing nothing with them. And they probably earn Google several percent interest which is a billion or two a year.

As tax, they could pay for roads, hospitals, police etc. rather than sitting as a number in a corporation account.

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Holmes

Re: Think about it...

Well Google's profits comes from advertisers. But okay, that ultimately comes from consumers. Still, faced with lower rates of corporation tax do you think companies would (a) pass on the savings to customers, through lower prices, or (b) pass on the savings to their shareholders as higher dividends?

A two pipe puzzle, that one.

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Re: Think about it...

No, sorry, you are wrong. Corporation tax is charged on profits that have already, as it were, been banked. It comes out of shareholder dividends or remuneration-committee voted boss pay. What makes you think for one microsecond that if a company did not have to pay corporation tax, it would cut prices next year?

You will be telling me next that if we did not have to pay VAT, shop prices would drop by over 16%.

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