back to article UK.gov in pre-election 'Google tax' blitz against internet firms

Britain's Chancellor of the Exchequer George Osborne has promised to tackle multinational internet outfits that divert profits to avoid big tax bills in Blighty. The so-called "Google tax" crackdown will reportedly be a highlight of the thin-lipped, Number 11 occupant's final budget before the General Election, which takes …

  1. William Donelson

    Act Now: Must have votes from Plebs. They will forget later, anyway

    Conservative crap.

    Act Now: Must have votes from Plebs. They will forget later, anyway

  2. Ketlan
    Devil

    I call bullshit

    'At the time, the proposed law said that tech giants...would have to "self-report" any diverted profits to HMRC'

    Yeah, that'll happen.

    1. Pellinor

      Re: I call bullshit

      If they don't, then HMRC can have a crack at them for not self-reporting and can apply higher penalties.

      The initial report is simply that they might have some profits caught by the new tax, which is pretty hard to deny if you fit the fact pattern Then they have to give an initial estimate of what the amount is, which HMRC can then dispute.

      I'm pretty sure HMRC will have a list with at least a few names on it that they're expecting reports from. They may be short on resources, so probably can't fight their corner as well as perhaps they should be able to (I speak as a taxpayer here, not as a tax advisor ;-) ), but they're not entirely stupid.

      1. Fonant

        Re: I call bullshit

        HMRC can have a crack at them for not self-reporting and can apply higher penalties.

        Except, as any Private Eye reader knows, HMRC work for Big Business, not for the tax payer. There is more incentive for HMRC to keep Google and Starbucks and Vodaphone on side than there is to ensure that they're paying their fair amount of taxes.

        Why? Because there's a nice little revolving door for senior accountacy firm staff to work for HMRC, create new rules that benefit Big Business, and then leave to work as a nicely-paid director of some accountancy firm or Big Business that benefitted from the new rules. They simply state "we don't want to frighten away corporations from doing business in the UK" if anyone complains.

        This is why the rules work very well for Google and Amazon, but are a complete nightmare (see: EU VAT regulations, auto-enrolement for pensions, etc.) for small and micro-businesses.

        TL:DR; we're not governed by governments, we're governed by Big Business. If the TTIP deal is done then this merely makes it explicit.

        1. Pellinor

          Re: I call bullshit

          Private Eye requires something of a pinch of salt :-) You do realise that it has its tongue firmly in its cheek, and its editorial policy appears to be essentially that anything iconoclastic is ipso facto worthy of publication, don't you?

          There is nothing about the diverted profits tax that is good for a large business. At the very least it's another bit of admin to fill in, even if they can argue that there's nothing to pay (and the rules are stacked against them: there's a built-in assumption that royalties paid are over the odds, for example, even if they're OK under transfer pricing rules). At worst it's a great chunk of tax to pay that they'll never see again. Somewhere in the middle is an extended argument with HMRC costing a lot of legal and accounting fees. None of those is a good outcome in any way - even if they come out of it with a nil assessment, they'll get adverse publicity for being dodgy enough to potentially be caught and even dodgier for sliding out of it.

          If HMRC were working for Big Business, the DPT would never have been mooted.

    2. Anonymous Coward
      WTF?

      Re: I call bullshit

      The Times added that companies with a turnover of less than £250m were likely to be exempted from the apparent tax crackdown. is the bullshit that caught my attention. What are the penalties if you are "small fry" and don't self-report as well and HMRC decide that they need even more revenues? [Or want to signal other firms.]

      1. Pellinor

        Re: I call bullshit

        If you're "small fry" and don't self-report, you're fine: the whole point is that small companies are completely exempt from the tax.

        In my experience, companies smaller than £250m don't have elaborate structures anyway. Well some of the PE ones do, but that's to make sure debt is subordinated properly rather than to muck about seriously with the tax position.

    3. Dan 55 Silver badge

      Re: I call bullshit

      I assume as tax avoidance is not illegal they'll call Osborne's bluff and file a piece of paper with the grand total of '£0.00', putting the ball back in his court.

      1. Pellinor

        Re: I call bullshit

        The legislation works by having the company say what profits they think could be seen as being at risk of having been diverted, then HMRC assess an amount and demand the tax on it.

        The company then has to pay the tax first and argue about it later. It's very much backwards from normal self-assessment, where HMRC have to show that your self-assessment was wrong. In many ways, it's like an accelerated payment notice being issued right from the word go.

        So if you "call Osborne's bluff and file a piece of paper with the grand total of '£0.00'", HMRC can call your bluff and reply with a piece of paper saying "25% of £20bn is £5bn, payment in 30 days please".

        1. Dan 55 Silver badge

          Re: I call bullshit

          But none of what they do is all illegal. What's HMRC going to do, say 'well actually you said that you owe us £0.00 in diverted profits and we don't like that. We think that if you changed your company structure from something which isn't illegal but we don't like to something else which also isn't illegal but we like more, we work out that you would owe us this much, so pay us this much'?

          So they either make their practices illegal or they make them illegal for companies with a worldwide profit/turnover of more than x, but anything else is just an extortion racket, not the rule of law.

  3. Anonymous Coward
    Anonymous Coward

    We're all in this together George, so...

    Tonight, run a hot bath, have a few Johnny Walkers and then have a go at your wrists with some 'Non-Safetys'...and in the morning everything will be as right as rain for the 99%.

  4. Flocke Kroes Silver badge

    Check it out

    Here is the dr̷aft law.

    Overview of legislation in draft: 226 pages

    Draft clauses and explanatory notes for Finance Bill 2015: 552 pages

    Some UK MP's can read a page or two. I am sure nearly two of the 650 can read five pages. If you want to find someone who can read and understand all 552 pages, try asking a Micrappoogle accountant. One of them probably wrote it, and made it that long to hide a dozen loopholes.

    The good news is that as the MPs are wasting so much time and effort on something that will achieve nothing, they should be too distracted to do anything more damaging.

    1. Anonymous Coward
      Anonymous Coward

      Re: Check it out

      Was the 'Handle' Murdre Kroes already taken?

    2. Pellinor

      Re: Check it out

      I'm fairly sure no-one from industry would have come up with this tax, it's a complete outlier from everything else and kind of breaks the normal principles of international tax. I also doubt anyone from the major accountancy firms did, for the same reason. It looks to me to be a political thing the Treasury were told to make work so it could be stuck in the Finance Bill. Tax bods would have been more likely worked within existing transfer pricing rules: maybe tightening up the definition of permanent establishment to bring profits into the UK.

  5. ratfox Silver badge
    Paris Hilton

    Any info on how the new tax will be legal under European laws? That I understand, there is no way the UK can tax Google Ireland, and the part where Google Ireland can declare all its profits in Ireland is one of the big features of the single market thing.

    I mean, Google is most definitely taking advantage of the economy nurtured by the UK government without paying much in return; but at the moment, it seems like the UK government can do sweet FA about it…

    1. Pellinor

      The tax is on Google UK, taxing the profits that could have been made had Google structured things differently.

      The idea is that Google can quite happily make actual profits in Ireland, but the UK will simply deem it to have made profits in the UK for purposes of this tax (even though not for corporation tax).

      Speaking as a tax advisor, this works in theory: the problem is going to be working out what the deemed profits should be. I'm glad all my clients are too small for me to have to get involved :-)

  6. Mike Dimmick

    25% of nothing is still nothing

    The problem with Google, Microsoft, Apple, Amazon etc is that they are falsely attributing costs and revenues in order to declare a reduced or zero profit in the UK. It doesn't matter if the rate is 20%, 25% or 100%, the Treasury won't get anything. This is a deliberate attempt by the government to claim to be doing something while in fact doing nothing. It is worse than doing nothing as it has the appearance of having solved the problem, taking public attention away from it.

    1. Pellinor

      Re: 25% of nothing is still nothing

      The profit in the UK is irrelevant for DPT: the taxable profit is the amount that's deemed could have arisen if a different structure had been adopted. It'll take forever to agree any amounts, but I'm fairly sure some amounts will end up being paid. How big they'll be is anyone's guess.

      1. jnffarrell1

        Re: 25% of nothing is still nothing

        If government knew anything about internal cost accounting it would fix its 5x worse than corporate accounting procedures. Governments pretending to assign costs to localities for political reasons are laughably incompetent at their own jobs.

    2. DougS Silver badge

      How do you determine if costs are "falsely" attributed?

      Let's take Apple and Google as examples. Apple mostly sells things, which they have manufactured for a given price, wholesale at a higher price, and retail at an even higher price. For the sake of argument let's say all their sales are iPhones, which all cost $200 to manufacture, wholesales for $600 and retails for $650 (I'm ignoring ALL fixed costs here to keep this simple)

      Google sells mostly ads, which cost them essentially zero to deliver but they obviously have some considerable fixed cost in running their servers, their engineers, etc. and a by comparison small cost in staff to sell the ads.

      So what's the profit when Apple sells an iPhone in the UK? I'm guessing you're going to argue that it is $450, but FASB says it is $50 and a country that ignores FASB in their laws for something this basic will find business fleeing fast enough that the extra revenue the law brings in won't compensate for it.

      What's the profit when Google sells 1000 ad packages for $1000/ea, and have two UK ad sales people making $100K/yr (convert this all to pounds in your head if you're in the UK) Is that an $800K profit? Of course not, they have some fixed costs, but allocating those is a lot more tricky. Is the UK government going to be in charge of how Google does its books, to insure they aren't lading more cost into the UK than what the UK thinks is "fair"?

      Almost all the engineers designing the clever algorithms that make those targeted ad packages worth $1000 instead of $10 work in the US, so should their contribution to the value of those ads in the UK be ignored because Google isn't creating jobs in the UK doing that work? Maybe the UK government can find a way to get them to pay more, but there will probably be another loophole found pretty quickly by one of the companies with a similar 'services' based business that the others will quickly copy.

      If the UK wants to fix this, they need to undo some of the tax treaties they have with other countries that these companies are exploiting. They can't attack it as a problem of where companies attribute cost, unless they want to make the UK a pariah amongst multinationals.

      1. xerocred

        Re: How do you determine if costs are "falsely" attributed?

        Exactly.

        Then there is the case of the UK based multinationals (if there are any these days) who bring the prfits back to UK getting nailed on tit-for-tat tax arrangements elsewhere.

  7. Anonymous Coward
    Anonymous Coward

    When I go forwards you go backwards.....

    I will stop, I will stop at nothing, say the right things, when electioneering. I trust I can rely on your vote.

  8. Francis Vaughan

    It's started

    Despite the cynicism above, it is clear that governments of all colours, and in most countries are now tired of the evasion tactics being used by these companies. It represents a significant amount of money simply vanishing out of the the country. (There is always going to be a difference between supporting low taxes on local companies - where the money stays in the country - and low taxes on companies that simply export the money.)

    This represents the first shot in what is likely to be a protracted war. Ultimately what is going to happen is that the mutual taxation treaties will come undone. But that may take a decade or more.

    Here we have the alternative. The tax officials get to deem what is a reasonable company structure versus one that is designed for the purpose of evading tax, and to then apply a tax estimate that assumes a reasonable company structure. So then it goes to court, and the courts decide what is a construct, and what is a reasonable structure. At the moment we have constructs such as local companies paying the parent* 50% of their revenue as a licence fee simply to be allowed to use the company brand name. Indeed a licence fee that just so happens to vacuum up all the profit.

    * Where the global parent company isn't the one in California where it all happens, which you might expect, but strangely one registered in a tax haven with an office of a few dozen people.

    1. Destroy All Monsters Silver badge
      Pint

      "The more stitches the less riches..."

      It represents a significant amount of money simply vanishing out of the the country.

      You do know that is currently a currency war of historically unheard proportions going on, whereby various central banks are busy destroying the citizens' wellbeing by printing money in order to keep exchange rates at level supposedly favoring "exports" (I won't go into the fact that this amazingly disfavors the "imports" needed to generate the "exports").

      Now money never "vanishes out of the the country" - it will have to be exchanged against some other currency, or even "hard money" (the horror!). Doing so will depress the exchange rate as more "GBP paper money" starts to accumulate in vaults. So this is good! Meanwhile, savings (eww!) abroad increase. This is also good, though maybe not for the economy of the UK if no-one bothers to invest there anymore.

      What you actually mean is of course "money simply vanishes from under parental control of the nice UK state". That is something else entirely.

  9. Destroy All Monsters Silver badge
    Windows

    Bum icon for obvious reasons

    This sure will absorb a fat part of the 252%-of-GDP debt level of the UK, which has increased at the healthy clip of 30% since the start-of-the-recession. MUH AUSTERITY!

    Considering that GDP numbers are currently artificially inflated by excessive use of the government's credit card, we might well be looking at 300%-of-actual-GDP debt levels and up.

    Athens-upon-Thames when?

  10. Anonymous Coward
    Anonymous Coward

    George Osborne has promised

    pre-election, changes into "George Osborne has warned", post-election. That said, he's not unique in this particular, seasonal mood-swinging mode.

  11. Anonymous Coward
    Anonymous Coward

    Google will pay

    Well it must be all sorted out seeing as HMRC staff are now using Chrome and Google Docs for all their stuff as well as the head honchos using desk video in hangouts for meetings.

    I mean, HMRC bosses wouldn't condone a tax 'non payer' would they?

  12. Wolfclaw

    Election Bribes

    Anything to keep the self-serving, elitist, lying Tories in power, wonder how many companies sudenly drop below the £250m profit limit ???

  13. All names Taken
    Alien

    Rip off Britain?

    It seems that rip off Britain is worth defending?

  14. The Godfather
    Coat

    Question...why just US owned internet companies...what about all those large, medium and even small corporates, who like internet companies. mitigate their tax through legitimate practices. HP, for example, pays zero corporation tax in the UK.............

    1. graeme leggett

      I suspect the US internet firms merely pop to top of list of examples as they

      1) are well-known names

      2) already have a fair degree of suspicion and mud sticking to them

      3) being the internet, to the average person, it's vague as to how money is made in the first place but being huge, and therefore able to employ (do-no-evil) tax advisors they are "probably up to no good, init"

      No doubt other names could be given as possibilities - in the more conventional service or hospitality industry perhaps - say a coffee house chain

  15. sashapruter

    Its good the UK is doing something about these companies. Its ridiculous that us slubs pay over 40% tax while a company like Google pays almost nothing. It should be the other way round. A company like Google gets away with it because it is so good at lobbying. Microsoft should have taken a leaf out of Googles book 15 years ago and they may have gotten off more lightly with anti trust cases. Hopefully in 10 years these big companies like Google will not be the only show in town.

    1. Camilla Smythe

      It's good..

      "Its good the UK is doing something about these companies. Its ridiculous that us slubs pay over 40% tax while a company like Google pays almost nothing."

      http://regmedia.co.uk/2015/03/08/osbo_burger.jpg?x=648&y=429&crop=1

      http://i.dailymail.co.uk/i/pix/2012/03/05/article-0-0BD02FEA000005DC-630_472x436.jpg

      Nice shirts but..

      Now ask them why Google is smeared across their WebSites.

      OsboShirtLoon: "Fooking Cunts we are Going to VAT YOU"

      CamShirtLoon: "I Agree. VAT them IMMENSELY"

      Google "In respect of previous discussions may we be timorous and offer you a job?"

      Both: "Ah well, that's a different matter."

  16. All names Taken
    Alien

    Re: Question...why just US owned internet companies.

    Over here in Blighty the tax people employed by guvmint like to make examples of high profile people/companies/enterprises (apart from their own that is. You will not find an example of tax prosecution of HMRC against civil servants?)

    1. Tzhx

      Re: Question...why just US owned internet companies.

      >> You will not find an example of tax prosecution of HMRC against civil servants

      Or political donors, former members of boy-bands, buddies of the PM...

  17. Random Q Hacker

    Impact to society...

    Imagine the hundreds of billions diverted from taxes that could have gone to school, medical care, infrastructure... It's no wonder the rich are calling for the rest of us to be austere.

    Now imagine all of the smaller companies without fleets of lawyers trying to compete with the multinationals... No matter how good their ideas or how efficient they are, they are at a government approved 20+% disadvantage economically, not even counting ask the special tax breaks and incentives they are willingly given. Is that a fair market?

    Common people and businesses are suffering because of the money siphoned out of our economies, and the market is rigged to keep it that way. I hope some form of legislation succeeds to rein it in.

    Regulate the big multinationals, and let the rest of us compete fairly!

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