back to article 'International tax' needs reform. Google's chicken bill makes me chuckle – comms guy

Google's communications veep has called for reform of the international tax system in wake of the backlash against the company's £130m tax deal with HMRC. Speaking on the Andrew Marr Show yesterday, Peter Barron said: “We think that the international tax system, which has been around since the 1920s, could do with reform and …

  1. Doctor Syntax Silver badge

    "The point is the corporation tax is levied in the economic activity where its profits happen...we have 17,000 software engineers in California...The company has 2,300 employees in the UK"

    So divide up the profits according to the number of employees in each country and apply the countries' relevant tax rates to each portion.

    1. Anonymous Coward
      Anonymous Coward

      "So divide up the profits according to the number of employees in each country and apply the countries' relevant tax rates to each portion."

      That's effectively what they did in the UK. You assume every other nation has the same system of corporation tax though, they don't.

      Good summary I saw was in the FT which looked at the last 18 months worth of finances from Google. ~£4bn revenue (which generated £800m in VAT), ~1£bn in profit attributed to that. The estimation of how much British workers had in creating that (considering the bulk of the ability to create these sales stem from California) was ~15% (sales, marketing costs for Google), meaning £150m of Google's UK profit is subject to corporation tax. Apply a 40% tax rate to that, you get £30m. You can assume that the latest 18months were the most profitiable, and that this is the highest end of the back taxes due, meaning £130m is probably in the ballpark.

      The things we may wish to challenge/argue about:

      1) Whether 15% is a good estimation of the part the UK had in creating that revenue

      2) Whether corporation tax should work in this way

      1. Anonymous Coward
        Anonymous Coward

        Oops

        "Apply a 40% tax rate to that"

        Oops, I mean 20% corporation tax...

  2. Anonymous Coward
    Anonymous Coward

    Foot in Mouth award of the year.

    we have 17,000 software engineers in California

    Good, then pay USA tax rate, not Bermuda one.

    1. maffski

      Re: Foot in Mouth award of the year.

      They do. The US tax system accounts for the profits once they enter the US. If you don't want it to work like that you should petition the US to change their taxation system.

  3. TRT Silver badge

    So we need...

    a worldwide rate of tax. A big pot that can be used for e.g. disaster relief.

    1. TRT Silver badge

      Re: So we need...

      No, seriously... if companies use differing territorial tax rates to avoid paying it where it morally should be paid, then we need a non-territorial tax rate. Obviously no one nation can benefit from such a scheme, hence the non-territorial nature of the use of such taxes; whether that be disaster relief, oceanographic research / cleanup, space debris cleanup, open data global observation platforms... The rate should be set at the global mean and applied to the residual not paid to whichever nation the profits are declared in.

      1. Mark 85 Silver badge

        Re: So we need...

        In an ideal world, that would work. However, countries like to give incentives for companies to move or put their businesses there. It helps keep the locals employed plus there's power perks, etc. for the government higher ups.

        If taxes were a world-wide thing and a level playing field, the big differentiation and incentive would be wages. Guess where all the jobs would be?

      2. Cynic_999 Silver badge

        Re: So we need...

        "

        if companies use differing territorial tax rates to avoid paying it where it morally should be paid ...

        "

        Huh? Essentially it is a ruler who has unilaterally declared that you must pay him for the privilege of being ruled. A legalised protection racket. The vast majority of tax is spent on things that benefit the rulers rather than the ruled.

        If there is any moral aspect whatsoever, it is a moral duty to avoid paying more than you absolutely have to pay.

        1. TRT Silver badge

          Re: So we need...

          We're getting into the area of juris prudence here. Jeremy Bentham and HLA Hart etc. There's a moral obligation to society and the planet not to shit on the doorstep. Arguable, of course, but I think we've come past the point of it being OK dumping oil-contaminated bilge at sea, or leaving defunct rocket stages in orbit, or having faulty pressure heads on deep sea drilling rigs etc.

          So taxes pay for things used communally. Police forces, fire services, roads, rail etc etc. It's all well and good arguing that it's a legalised protection racket, but the laws that allow the loophole are those posited and enforced by a recognised government which has its own costs. i.e. the law is itself a user of taxes collected. Otherwise you would just set up in a truly anarchic state, pay no tax at all, but have no legal framework to declare that you are operating under. Catch-22.

          1. Anonymous Coward
            Anonymous Coward

            Re: So we need...

            "So taxes pay for things used communally"

            And there are a multitude of taxes, aimed at various different activities. International corporation tax is a very small part of the wider taxes a company either directly or indirectly pays towards.

          2. Cynic_999 Silver badge

            Re: So we need...

            "

            So taxes pay for things used communally. Police forces, fire services, roads, rail etc etc

            "

            Most of the communal stuff you speak of is supposed to be paid for with my council tax, other than roads which are supposed to be paid for with my road tax. Public transport has been privatised and should pay for its own infrastructure from its income in the normal way - the same goes for utilities.

            It is difficult to see the justification for other types of taxation - and I certainly do not get value from the "communal services" that amounts to the 80% or more of my gross earnings that end up in the government's hands via on form of tax or another.

            1. Anonymous Coward
              Anonymous Coward

              Re: So we need...

              "other than roads which are supposed to be paid for with my road tax"

              Not since 1937, and even then it wasn't enough to cover the cost of the road network. You mean Vehicle Excise Duty.

      3. Tom 13

        Re: morally should be paid

        Morally, companies OUGHT to seek to minimize the amount the tax leeches take from the people working to make things. Sounds to me like Google's doing a good job of that.

  4. Anonymous Coward
    Anonymous Coward

    They should stop shopping at waitrose for chickens and pay more tax.

  5. Zog_but_not_the_first Silver badge
    Meh

    Noble sentiments...

    But until the Gordian knot of government, corporate and financial interests is untangled, it ain't going to happen.

    1. Rich 11 Silver badge

      Re: Noble sentiments...

      I think Alexander the Great had the right solution to that knotty little problem...

    2. Doctor_Wibble
      Trollface

      Re: Noble sentiments...

      Alexander the Great's answer to the Gordian Knot?

      I know this one from history, it's where you crush your enemies and see them driven before you, right...?

      On a more serious note, I think my approach would deliver excellent entertainment value and the ticket sales would cover any alleged within the law completely legitimate financial arrangements and pay for lots of official lunches to grease the wheels too.

      1. Tom 13
        Terminator

        Re: it's where you crush your enemies and see them driven before you

        You forgot

        "and hear the lamentations of their women."

        Terminator icon because the one for Arnold is missing.

  6. This post has been deleted by its author

    1. maffski

      Re: Get rid of corporation tax...

      A really, really, bad idea.

      It might work fine for massive companies, but what about a small business in say Germany making just a few sales into the UK, would they register for, and pay for an accountant who understood, UK taxes? Or just say 'lets not bother with the UK' (in German).

      Or what about a Google sized company selling advertising in a small location (say the Falkland Islands) - would they really go to the trouble, or just tell them, 'hard luck, go find your tourists some other way'.

      I'd rather loose a little tax revenues from giant corporations than loose vast amounts of economic activity from SMEs.

      1. Anonymous Coward
        Anonymous Coward

        Typo?

        "loose" != "lose".

        A depressingly common mistake here on the register comment boards

      2. Tom 13

        Re: a small business in say Germany

        Simples. If there is an applicable import tax, that gets payed at the point of import. Otherwise, the guy in the UK who sells it collects the tax and pays it.

        Yes that does mean you'll have to work through distributors and resellers. That's what they are there for. If you want to cut them out, you have to foot the bill for following the law.

    2. AceRimmer

      Re: Get rid of corporation tax...

      Sales are already taxed

    3. Richard Wharram

      Re: Get rid of corporation tax...

      Tremendously poor idea. I can't believe Nigel Lawson talked about doing it.

      Would it just be retail sales? In that case manufacturers would pay nothing?

      If its all sales between companies then it would put products with a long supply-chain at a tremendous disadvantage and have perverse effects on how things get made.

      If the tax could be passed between companies to get round the above then how does it differ from VAT?

      Some businesses are high-volume and low-margin. They'd be fucked. How would it differentiate?

      There's a reason we tax profit rather than revenue and just because there are some drawbacks to this model doesn't mean we should throw it away in favour of something clearly worse.

      1. LDS Silver badge

        Re: Get rid of corporation tax...

        Taxing sales and not profit would rapidly kill business in troubles (and their jobs too) which may have little or no profits but would still pay the taxes on every buy. Same is true for people - if your income decreases, taxes do as well - but as soon as you move them mostly to properties and expenses, you may find you're not able to reduce them very much (house, food, kids...) and find enough space to breathe and try to recover (having to rely heavily on state subsidies makes politicians happy, because they will have your soul...)

        Most of these theories are aimed at moving taxes away from where the highest profits are concentrated - the top of the pyramid - down to the base where expenses are sustained by a much broader base - so those at the top will pay relatively low taxes...

        1. JamesPond
          FAIL

          Re: Get rid of corporation tax...

          Agree, maybe okay for large companies, bad for the rest of us. It's like saying if you work 40 hours per week we'll tax you on the hours you work, so whether that's 40 hours a week at £7 per hour, or 40 hours per week at £100 per hour, you both pay the same tax. . And what if the company makes a loss in the year, or a small company doesn't get paid for months on end (like Tesco was doing) when is the sale completed? On the sales ledger it shows 500 widgets sold to Tescos, do I pay tax at this point? But on the balance sheet it doesn't show any incoming money for 6 months. Ludicrous

          1. ratfox Silver badge

            Re: Get rid of corporation tax...

            It might work fine for massive companies, but what about a small business in say Germany making just a few sales into the UK, would they register for, and pay for an accountant who understood, UK taxes? Or just say 'lets not bother with the UK' (in German).

            This is of course the reason why the single market was created: it allows small companies to sell anywhere without incurring the massive fixed cost of declaring tax in every country where they sell.

            It was not, or at least not openly, created so that global corporations can shop around for the smallest tax rates and sell everything "from that country", even though they also have operations in every country to which they sell to.

            A solution would be: if a corporation owns operations in the country of the customer, it must declare its income there. I believe there are precedents for similar rules about Controlled Foreign Corporations.

        2. Tom 13

          Re: rapidly kill business in troubles

          Businesses in trouble ought to be killed rapidly and replaced with ones that aren't. Much of our current economic malaise is attributable to the fact that progtards such as yourself have inhibited this process for far too long.

      2. Anonymous Coward
        Anonymous Coward

        Re: Get rid of corporation tax...

        It would have to be sales tax.

        Business would have to adjust, but then they seem remarkably able to adjust their business when the tax suits them. "high-volume and low-margin." etc. all their competitors would be hit exactly the same way. A higher playing field but just as level.

        "There's a reason we tax profit rather than revenue"

        But sales tax is tax on output minus tax on inputs, .e.g REAL profits. Tax free inputs can't have that tax offset against taxed outputs, so it ties the taxing to the real work done, not some contract licensing vague property rights from a tax haven.

        "If the tax could be passed between companies to get round the above then how does it differ from VAT?"

        Pray tell me how Facebook Caymans can create a sales tax on its "corporate rights" contract that can be used to reduce the sales tax on advertising it sells in the UK? It couldn't.

    4. Tom 13

      Re: Get rid of corporation tax...

      You'll never get that one past the freetards.

      Sales taxes put an effective limit of about 10% on how much those who like to spend other people's money can take. That's way too low to satisfy their envy.

  7. John H Woods Silver badge

    Barron insisted that the £130m arrangement for Google to pay its back taxes between 2005-2014 was not a sweetheart deal. He said: “Identifying what the economic activity is, what the added value in the UK is, is a difficult business and that is what we have been working out with HMRC over the years and all the discussion about [a] so-called permanent establishment.”

    Are Google and/or HMRC are prepared to show the steps and figures in this "working out" because if not it's easier to believe that it is is a sweetheart deal.

    1. Flocke Kroes Silver badge

      How many sweet hearts before it is an ordinary deal?

      Have Microsoft and Apple recently pointed and their new UK tax bills and said they had to pay much more than Google?

    2. Paul Shirley

      It''s only a 'sweetheart deal' iff they're paying substantially less than a court would force them to. Start by showing the workings where multinationals are breaking the law.

      Since no one actually believes there's any law being broken we're left with moral outrage (and in the case of politicians there's precious little morality involved) but corporate entities don't really feel shame and shareholders are free to sue them if they act on it.

      I'm morally outraged that yet again politicians would rather froth & foam about a broken system their predecessors created rather than actually fix their own mistakes. It's always someone else's responsibility when politicians and gov screw up.

  8. Why Not?
    Thumb Down

    Tax doesn't have to be taxing unless you are a prole.

    Well if we truly have a European Union then taxation submission should be identical in all of them. If there are loopholes such as a Double Dutch Irish sandwich etc then we should disallow such things and tax fully in the UK, We shouldn't recognise tax havens used to avoid UK tax except as an artificial vehicle to avoid tax.Maybe we can 'deem' them tax evaders?

    I bet to continue allowing large corporations to avoid tax won't be in the VoteRemains.EU prospectus.

    Strange HMRC have spent tens of millions redefining existing contractor relationships under IR35 and losing again & again in court for peanuts (there must be a better way to recover £10k of tax over a decade). Yet when it comes to billions in turnover in the UK with UK customers being 'finalised in Ireland' and a tax haven its business as usual, maybe the international companies can afford better lawyers?

    1. LDS Silver badge

      Re: Tax doesn't have to be taxing unless you are a prole.

      The also have people like Jean-Claude Junker on their side... he will need a new job when it position at the EU commision ends, won't he? He's already many friends in many companies, the one he helped to pay as few taxes as possible in Luxembourg... and these little states have enormous power, because a lot of EU politicians (and their close friends and supporters) dirty secrets are held there.

    2. LucreLout Silver badge

      Re: Tax doesn't have to be taxing unless you are a prole.

      Well if we truly have a European Union then taxation submission should be identical in all of them.

      You can't arbitrarily harmonize taxation unless you first harmonize service provision and expenditure. You'd also have to harmonize public sector work ethic across Europe too.

      I'm not suggesting these things would be good or bad, only that you can't harmonize revenue collection in isolation.

      1. Tom 13

        Re: unless you first harmonize service provision and expenditure.

        That wasn't nice. Using logic or facts damages their precious egos.

        1. Why Not?

          Re: unless you first harmonize service provision and expenditure.

          oh Whooooosh!!!!

          do keep up at the back.

  9. DavCrav Silver badge

    "The point is the corporation tax is levied in the economic activity where its profits happen...we have 17,000 software engineers in California...The company has 2,300 employees in the UK"

    That's rubbish. Google is an advertising company, so the 'economic activity' he talks about is selling advertisements, which happens in the UK (and France, Germany, US,etc.).

    1. ratfox Silver badge
      Stop

      That's rubbish. Google is an advertising company, so the 'economic activity' he talks about is selling advertisements, which happens in the UK (and France, Germany, US,etc.).

      Are you the type of person who thinks that Sales is making the real money, and the company would be so much better off if only you could get rid of cost centers like Engineering and data centers?

      1. Why Not?

        Unfortunately in the UK sales are the vast majority of profit related activity. We need to tax them at a sensible rate so competitors aren't disadvantaged.

        Most companies all think Sales are making the real money, they might understand that they have to service the customers but if they could get away without doing that then they would try, as they can't they just outsource everything.

      2. DavCrav Silver badge

        "Are you the type of person who thinks that Sales is making the real money, and the company would be so much better off if only you could get rid of cost centers like Engineering and data centers?"

        They could always move those jobs to the UK if they want to offset them against UK costs. Why exactly should US multinationals (and UK multinationals, etc.) funnel all the money they make out of local markets because they don't employ people there? In fact, that sounds rather like we should tax them more than local companies, not less, if they just take money out of the UK economy.

        More generally, we have a pretty good idea what Google's global profit margin is: multiply that percentage by their UK sales to get a first-order approximation to their UK profit, and if their 'accounts' show something wildly different to that, it's time to get the rubber gloves out for a full audit, and open up fraud investigations on the local heads.

        Have attitudes hardened against technically legal bullshit from the likes of Google? You bet. Whose fault is it? Piss-takers like Google.

        1. LucreLout Silver badge

          Have attitudes hardened against technically legal bullshit from the likes of Google? You bet

          Attitudes could be harder than a virgin at a stripper convention and it won't matter a jot. Emotion is not a good way to run anything... except maybe a lonely hearts column.

          The only way to prevent tax arbitrage is with flat taxes, and those same people emoting against Google also rail against those.

          1. sed gawk
            Thumb Up

            Nice, stealing that ;)

            Attitudes could be harder than a virgin at a stripper convention and it won't matter a jot. Emotion is not a good way to run anything... except maybe a lonely hearts column. (LucreLout)

          2. DavCrav Silver badge

            "The only way to prevent tax arbitrage is with flat taxes, and those same people emoting against Google also rail against those."

            OK, so we should just give up then, and let multinational corporations fuck us over. Right.

    2. J.G.Harston Silver badge

      So, if I place an advert in the South China Morning Post, the SCMP must pay UK coroporation tax?

      1. DavCrav Silver badge

        "So, if I place an advert in the South China Morning Post, the SCMP must pay UK coroporation [sic] tax?"

        Did you miss the bit where Google has people in the UK selling advertising, then pretends that it goes through Ireland afterwards?

        And if the SCMP did a special UK edition geared towards people in the UK, sold in the UK, printed by people in the UK, etc., I would expect them to do so, yes.

  10. Anonymous Coward
    Anonymous Coward

    if you are a big multinational

    you have the luxuray of "moving" ecomomic activity around.

    Hence coffee chains "sell" their service to local stores at a rate the just happens to be around the cost+all the profit...

    This is more unfair on local businesses than the internationals that have no way of choosing which countries tax laws happen to be more cost effective.

    The big corporates are also under a legal obligation to gain best value for shareholders - which means managing their tax affairs for the benefit of investors.

    The basic problem is that each country that these corporates have a presence in want a bigger share of the possible revenue. All these firms pay tax somewhere however. I would assume that if UK or other countries get a bigger share then this would be removed from other countries tax recipts. I suspect that these areas would notice big cuts in revenue and will trigger the reverse arguments from today.

    Countries have been in tax competition for decades to some extent, its just exploited by increasingly large corporations, and there really is no easy way of either changing it, or defining what "fair tax" is, as each area will believe, i suspect, that fair means that none will collect less than current...

    1. Peter2 Silver badge

      Re: if you are a big multinational

      "The big corporates are also under a legal obligation* to gain best value for shareholders - which means managing their tax affairs for the benefit of investors."

      * Citation needed.

      There is no legal obligation to gain best value for shareholders. Especially not doing it in a manner that is contrary to the long term interests of the business, such as causing PR disasters that drag on in international media for weeks.

      1. TRT Silver badge

        Re: if you are a big multinational

        Companies Act 2006.

        Directors of a registered company have a duty to promote the success of the company. You must act in the way you consider, in good faith, would be most likely to promote the success of the company for the benefit of its shareholders as a whole, bearing in mind (among other things) the likely consequences of any decision in the long term;

        So, you're both right.

    2. Tom 13

      Re: All these firms pay tax somewhere however

      Here we get to the only point the freetards are actually correct about. Given all of the current special deals, it is possible to keep the money floating in International Space so that it never gets taxed. Apple in particular have been VERY good at that. Which isn't to say other multi-nationals have been slackers.

      Now, that means the money isn't directly available to the shareholders either. In order to make it available to them, you'd have to bring it into the country and pay the tax on it. So far this has been okay with the shareholders because the stock value has appreciated based on the money held in international suspension.

      This strikes me as a reasonably fair situation. So long as the freetards demand too much money from the actual producers, they don't get it. As soon as they set reasonable rates, the money will come home.

  11. SVV Silver badge

    We would like to be seen to be paying the right amount

    Well then send 20% of (Sales made in UK minus costs incurred in UK minus proportion of costs in USA that are equivalent to percentage of worldwide profits coming from the UK) to HMRC.

    That would be the "right" amount in a fair system :obviously different th the "legally allowed" amount under the current system.

  12. Anonymous Coward
    Facepalm

    A lot of this problem would just go away if governments stopped leeching all of our money away in taxation.

    Very little is actually being said about the obscene level of taxation in the UK and the US, and both governments frenziedly desperate attempts to acquire more.

    1. Tom 13

      Re: go away if governments stopped leeching

      Governments are proxies for the people. So it's really one group of powerful people leeching from another. But it's easier to blame it all on government than admit the fault is in ourselves.

      As for me, economically I like the total sales tax model. But for purposes of keeping the progrards in check, I'm willing to forgo that in preference for a flat tax on ALL income with no tax on corporate profits. I might be willing to set a rate of collections exclusion such that if you are collecting taxes you are at least covering the cost of collecting them from that person. (In other words, if from start to finish it costs *25 to collect the taxes, if the government doesn't collect *25 you don't pay.)

      *=your local currency sign

      1. TRT Silver badge

        Re: go away if governments stopped leeching

        I may have a simplistic understanding of taxation here.

        One has to accept that taxation is a certainty. There are costs associated with provision for a society or a nation. Be that providing national defence, policing, a legislative system, education, infrastructure, social security, health etc etc. The concept of paying at the point of use for everything seems to be the capitalist nirvana, but is totally unrealistic. They are all very happy to exploit loopholes in taxation law without paying towards the legislative structure that provides that law. At the same time, they believe they enjoy the legal protection of, say, intellectual property and will defend it using a judicial system that relies on the tax that they avoid paying! They simply cannot have it one way without the other just because it might suit them. Companies and individuals agree to abide by law because it offers them opportunity and protection, theoretically on a level playing field. Anything else and we would descend into an anarchy. If Google gets ripped off by Amazon in a business deal, what are they going to do without a common legislative recourse? Send in self-driving tanks to take on Amazon's drone army?

        The modes of taxation that have evolved over the years are taxation on income, taxation on property and taxation on activity. There are equivalents for individuals and companies / businesses. This seems to allow for capturing a portion of all fiduciary streams and tends to balance the income stream for government across the entire user base.

        The current "complaint" about international companies relates to their avoidance of paying a due proportion of the governmental revenue stream. There's a very clear moral duty to pay tax - it seems to me at least. There's an ongoing philosophical debate about morality in law, from the natural law proponents that say law arises from universal moral concepts (fairness for example), through legal positivism that calls for a complete separation of morality from law in the same way that the church is separate from the state, to realism which states that the law is as how it is practiced, criticalism which posits that the law is a tool designed to operate for the benefit of the most powerful group, and many other camps. Of course, it seems that the law is no pure strain of any of these schools. There has to be an element of reality in these theories in order for them to be even an inch of the starting block in any debate. If I said that the law is a banana, or a small moustachioed Bolivian traffic warden, or the dictate of noble alien lizard rulers imposed by mass psionic influence delivered from a base in the Sea of Tranquility, then I wouldn't even get past the end of the opening argument.

        If, therefore, we accept that fair taxation across the board is a requirement for a healthy civilisation, then we need to look carefully at how to achieve this, how the systems that have grown organically today are failing to achieve this, what are the good points of what we are currently doing, and then sort it out once and for all. Preferably in a way that's simple enough for everyone to understand without parasitic teams of legal wranglers looking for loopholes and efficiencies and dodges etc. Because they're blood sucking insects of such low moral character that a psychotic wasp looks like Mother Theresa by comparison.

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