Reply to post: Re: So are they breaking the law or not?

Five reasons why the Google tax deal is imploding

Tim Worstal

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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