Forget tax bills, here's how Google is really taking us all for a ride Here are a few predictions: Google will shrug off last week's tax scrutiny with a flick of its robotic tail; politicians and campaigners will declare this a "success"; and the much greater toll Google and other multinationals take on the global economy will be ignored. The protestors, upset about the tiny corporation tax bills …
Agreed, perhaps if we had a competative tax rate we might actually entice a few more global businesses to come over here, rather than the current scenario of many companies gonig abroad because it's cheaper, or just dodging tax. In all honesty I don't mind the tax dodgers so much because hey, at least they're still hiring people over here.
A lot of companies are just closing up shop and going to portugal / spain, especially in manufacturing etc. Locally well over 1000 jobs disappeared from a single company last year when it closed down manufacture and moved to Portugal. I'd rather have a company paying less tax and employing a few thousand than no tax and 1000 people out of a job.
I've said this before and I'll keep saying it, if the government do fill in the current tax loopholes through some kind of giant reform all that will do is the following
1) We'll get a short burst of income as the taxes have to be paid.
2) A large number of smaller companies abusing the tax loopholes will go out of business
3) A large number of larger companies abusing the tax loopholes will leave the UK
4) We'll be in a worse situation tax wise than we are now.
If these loopholes are fixed, they need to lower the tax rates at the same time. 15% of a few million is better than 30% of nothing.
Although personally I'd rather see a far more transparant tax system. Right now we're taxed on our pay, taxed on our savings, taxed on our purchases, taxed on our tax, taxed on the tax on our tax so on so forth.
I know this is an over simplification, but a simple way to avoid a lot of the tax dodging among the common man would be to cut out the majority of tax, and go for taxing pay only. One level of tax, before they get the money makes it far more difficult to dodge. At least in theory. Once again I know this is an over simplification but you get the jist right?
@AC 10:03
I think you are describing a thing called a Laffer Curve, which is (in short and rough) that at 0% tax you collect no tax, and at 100% tax you collect no tax (everybody leaves) so somewhere in the middle is a "maximum tax take" point where it's not worthwhile leaving, or doing tax shenanigans because you'd spend more than you'd save.
Problem is, as with most economic theories it doesn't actually work. Witness Ireland for example. A race to the bottom is a bad place to be - we can't go lower than zero (Bermuda, Cayman etc) and we'd lose the small amount from non multinationals we take currently.
To deal with this Governments of all nations need to sit down and work something out, for example a global tax rate of (say) 15%. Every country has that rate, there is nowhere for Google/Apple/Microsoft etc to run to, so they just cough up wherever they do business. This would never happen, heck you can't get all 200 countries to even join the UN let alone agree on tax treatment.
It would also impoverish offshore tax havens, potentially to the point where their "parent" ("protector" could be a better word) would end up handing over more in aid that it has gained from a more favourable tax take.
It's difficult, I do not know the answer to it.
And the article misses the point just as badly. Google has this monopoly only because it makes the best free email service and the best free web search and the best cloud storage system.
Making a product free-to-use and funding it through targeted advertising does not somehow magically create user lock-in and a monopoly. Google keeps creating services like gmail, google drive, google+ and so on precisely because its core business, search, has no lock-in at all. Changing to another search engine is as easy as changing a browser bookmark. So google has two options for keeping its dominance: Create services around search that create lock-in, or keep its search better than anyone else's.
It's not clear to me that its 'surrounding products' strategy is working. Gmail is, AFAICT, the best free email out there. But if a better one came along, I can jump ship any time and set up a permanent forward from gmail to the new service. Google Drive is, AFAICT, the best free cloud storage out there. But if a better one came along, I can download all my documents and put them in the new one whenever. Google+ is as near as they come to a true lock-in product, but it seems pretty clear that it is losing to Facebook, precisely because fb has beaten them at the lock-in game.
it makes the best free email service and the best free web search and the best cloud storage system.
You're missing the point that the article makes (IMHO; of course): Google is only "best" because it is economically impossible for anyone else to develop such a platform as they have to compete with a cross subsidised entity. I would also observe that Google supplies those services in total defiance of applicable privacy laws, which is why it is now being investigated in the whole of Europe ("best" is also a matter of interpretation, but not relevant to the argument).
I would also argue that "free" is an EXTREMELY misleading term. Google services are not free by any means, you pay for them with personal details. This means you're not only paying, but because you have no control over what Google does with that data, the potential is there that you are effectively paying forever.
I disagree completely with your view, just because something is free does not give them the right to send me targeted advertising based on personal emails. I would rather not have any advertising sent to me at all, I for sure do not want people calling me for advertising and I for sure do not want google spying on personal information which AFAICT to use your favorite acronym is exactly what they do....
Many people do not realize this (I suspect if they did they might be mildly concerned, probably not enough to do anything about it but thats for another discussion) and therefore google has access to more data about people and things than anyone else which then by default means that they can provide better services.
Not sure if you have ever tried forwarding all your emails to a different email address but it sucked when I did it because if you hit reply you are just replying to yourself and feeding the google monster in your case!!
When I started my subscription with ntl ages and ages ago they ran their email in house (Which there is no reason any semi competent ISP can not do).
At some point they decided to for whatever reason migrate everything to Google. For saving a trivially small amount of money and breaking the ability to actually do stuff with the accounts. It is just a mess.
That sort of stuff annoys me greatly.
If you are running an ISP you should do email / usenet in house like people used to.
(Even small ISP's used to no reason for the huge ones to outsource).
(Not as bad as Sky going from Google to Yahoo).
Even Laffer discredited the Laffer Curve.
Don't forget we and the US had much higher tax rates before and busisness were still started. The idea of a global tax is a non starter as some tossy little country (Ireland) will alway do a deal with the corporations.
Tax at source on revenue in the country the sale is made and refund against costs and investment with no transfer pricing allowed. Do that nad they can't get away.
Is Google going to go, bollocks we don't want the business in the UK? Will Amazon go sod it, thats £6 billion we can live without? Apple as well, they can go and close every Apple store and refuse to sell in th eUK, they won't do it. And even if they do, someone else local will step into their place to take that business.
The example of Boots moving their headquaters to Luxembourg, there is NO WAY they can leave the UK. Even if they did, which they won't , Superdrug or local stores will take the business.
Laffer discredited? It's surely bleeding obvious that the receipts from a tax set at 100% are zero, because you'd have to be mad to earn under such a regime. So there must be a curve from zero income at 0% tax to zero income at 100% tax. The argument is over what shape that curve is and how it varies with time, for tax rates between the extremes, and the effects of changing the rates. This, like many interesting things in economics, cannot be measured with useful precision. (Though gut reaction says that if a government is taking more than half of what one earns, it's time to start thinking about leaving! )
Actually, it did. Reagan cut taxes, revenues went up. Problem is, commentards like you ignore that fact in favor of the deficits going up on the assumption that spending was fixed. What actually happened was Tip O'Neil (D) increased spending $2 for every $1 in increased revenue.
Fix your tax rate at historical norms (18-22% for the US) and things will work. If you make it so it requires less effort to game the system than to pay your expected tax rate, people will. The issue is similar to music prices.
Quote
(Bermuda, Cayman etc)
Unquote
By gad sirah!
Are those not good ol' British Overseas Territories?
There cannot be anything untoward happening in those territories at all!
(Or can there?)
Wake up earthlingz - you in the UK re being so very fleeced.
We steal ownership of your football clubs and you pay even more for the privelege of seeing them play, someone in an office decides a publicly owned entity (think bandwidth?) is worth selling for many billions. Guess who pays the many billions?
Since so many companies can avoid paying this tax by relocating, why not scrap it?
There would then be no incentive to leave the UK and every incentive to relocate to the UK. More employment, so less benefits paid by the government to the unemployed. More purchasing by companies in the UK, so more indirect taxes raised. Maybe the government might find that it didn't need to raise taxes to make up any shortfall, maybe even the opposite. Worth a try?
You don't scrap the corporate tax for the simple reason that everyone that CAN declare themselves a corporation immediately does so (plumbers, doctors, independent consultants, etc.) and pays zero tax on income (or close to it) and leaves all the paying of earned income tax to those of us that have jobs working for others.
And the lower you make the corporate tax, the more incentive there is to do so.
Yes, once you are a corporation, you still have to pay yourself a salary, and get taxed on THAT little piece, but with creative accounting you can end up making £100,000 and only pay yourself (and be taxed on) £10,00 of it. Everything you can possibly make a business expense is one, and you hire your wife, children, etc. all to work for you to, and they pay tax at their rates (near 0%). This is an old game (it was written up well in "Rich Dad, Poor Dad"), and the sucker is the working stiffs that have to show up at their job and pay 40% tax while others pay 5% effectively, for the same job.
Most people reading this are wage slaves, like I am currently. Understand that all a zero corporate tax does is shift even more of the cost of running the country onto us, and allows a select segment to largely escape it at our expense. If that is your definition of a fair tax code, then good luck to you.
The way you avoid this is by making the difference between the personal tax rates and the corporate tax rate just a little less than the pain of the marginal effort of going through the trouble of incorporating, selling your own contract work, doing the accounting, etc. Figure 10% to 15% less corporate tax rates than personal tax rates. And then no one is disadvantaged just due to their employment structure.
But politicians don't want a simple tax system, it would be too easy to actually compare the manifestos of the parties. Much the same as complex tariffs in the energy market appear to offer choice, but actually make real comparison tedious and difficult.
It's just easier for one party to tinker some details in the complex tax structure and then claim a tremendous benefit, and the opposition can claim the precise opposite - all without anyone having the vaguest idea of which is better.
Britain isn't an unattractive place for a business to operate. Hundreds of thousands (millions?) of small businesses operate here, and pay their taxes. The problem is that governments (of various colours) permit/encourage curious loopholes so that their greedy chums in big business can and will avoid paying a fair and reasonable level of tax to support our society (okay, with the usual caveats about Trident, wars etc - it's the principle we're talking about).
Message to government: find a way to ensure that business activities carried out in the UK pay tax in the UK.
I think you have missed the main point of the article - that Google is a monopoly, which stifles any possible competition by undercutting everyone in a wide area of activities by subsidising it from its ad revenue, to which their potential competitors do not have access.
Amazon is in a different position as they are subject to much more competition and they do not have a special source of revenue, which is unavailable to their competitors.
The corporate tax "issue" is totally irrelevant to this discussion.
@Credas 12:16GMT
Actually in their core business of paid search, Google are a monopoly by any measure of the term used in most economies. They account for nearly 90% of all searches globally and over two-thirds of all paid search revenue. Now, you can argue that my definition of their business is too narrow, but online is rapidly catching (and overtaking) other advertising sectors; and lots of advertising sectors, especially TV, are subject to monopolies regulation, so why isn't internet? Google already makes more money in the UK than ITV and online's share of voice will continue to grow (indeed its pretty much the only growth ad market - everyone else is flat or in decline), with Google dominating that.
http://www.theregister.co.uk/2012/02/01/register_comments_guidelines/
Read the above comments guidelines BEFORE posting. If you disagree with the article (as many of you do, which is entirely right and fair), make your point civilly.
Demanding people be sacked, accusing us of being shills, mindlessly slagging off XYZ company/service/product/person ... comments like that are not going to make it through. Think before you post. If you don't like this, I refer you to point 1 in the link above.
Thank you for your manners and restraint. We have no problem with civil, reasoned discussion on here.
Not sure why people fail to get the message Shitpeas since you're speaking the truth. If the UK government wants to fix the issue they have to make it onerous to avoid taxes to compel Google to comply. Expecting them to do it from the goodness of their own hearts is not going to work on Google or any other company.
It may be fashionable to mention Google, but equally fashionably, everyone's (erroneously) throwing the tax affairs of these companies into the same pot. The way Google avoids tax isn't the same as the way Amazon avoids tax. In Amazon's case they've convinced their shareholders that profitability isn't a requirement for running a successful business, so, the amount of profit available to be taxed (in ANY country) is small because most of their revenues are ploughed back into growing the business. This is actually common and quite "old fashioned" in a way. Google's use of the Double Irish and effectively charging itself to keep profits in Ireland down is is also perfectly legal, but far more ethically dubious (in my opinion), because the value of what Google charges itself is entirely under Google's own control. They're stacking the deck.
However, as the article states, the tax affairs of large corporates are really a distraction compared to the wider effects of Google and others on the economy. As industry after industry is transformed, the vision of net utopians of creator engaging directly with consumer (always a naive vision, but its amazing how many people bought into it) has been replaced with consumer and creator engaging with a handful of absolutely massive middlemen, which ultimately can't be good for competition and consumer choice.
To be fair, Google-based advertising processes vastly improved on the practises if those that went before them - losing the animated pop-up shit - and at prices that allow even small players to afford and profit from their services.
I'd rather look at the likes of PayPal and the Big Banks for taking too big a slice of online purchases. If you can finance a space programme or a Formula 1 team from the profits, then you're taking too much.
At least Google's profits are going somewhere useful - like self-driving cars.
No, you're wrong, Google absolutely ARE the worst offender. So they've made advertising more effective than earlier models? Great. If you're an advertiser. Except its not really great because now 60% of your ad spend goes to Google and you've twisted your whole marketing organisation into a Google-friendly pretzel (for the last few years it was SEO, now Google says "do content" so everyone starts "doing content"). If Google changes the rules, you don't have a plan B.
This article is bang on the money and you've actually fallen for the seduction of Google; "At least Google's profits are going somewhere useful - like self-driving cars." - well, yes, Google make so much money they can do "cool stuff", but its their agenda, and their "cool stuff" that gets built, usually because there's ultimately yet another data payoff for Google at the back end.
As for looking at PayPal and the banks, I don't disagree, except, Google are no better than them when they DO charge for stuff, and just to be clear, Elon Musk doesn't fund a space program from what PayPal earns, he funds it from what he sold PayPal for.
I'm not particularly worried about Facebook, because advertisers are already wising up to their inability to deliver value, but Google are incredibly adept at using their dominance in one sector (and their huge pile of cash) to leverage themselves into others. Yes, their products are good, but they create such effective barriers to entry for new players that we have little or no opportunity to see potentially better alternatives once the Google tanks are parked on a particular sector's lawn.
"[...] and their "cool stuff" that gets built, usually because there's ultimately yet another data payoff for Google at the back end."
Spot on. Take Google Glass for example. Cool stuff, eh? Now say you meet someone on the street. They wear the glasses. Without your knowledge, you could be recorded and the video be shared online. And even if it isn't shared or made public, Google still can and will gather information from it. It's naive to think anything else. Still cool stuff, but a little bit more evil than Google would like to be seen, as usual.
Privacy goes right out of the window, if it hasn't already. (Chances are that it has a long time ago, depending on how many Google services you use [*], and for how long. And all that will happen is some petty fine by the EU which costs Google less than a weekly company-wide supply of toilet paper).
[*] certainly also applicable to a number of other data collecting companies; however, Google undoubtedly does it on the biggest scale, by far.
You say "offender" as if Google has committed some kind of offence.
Guardian ran an (almost) good article about it, which despite all the not-too-subtle digs, quote Schmidt as saying "change your tax laws, we'll always pay the least amount we can get away with, we're obligated by US law to do so."
http://www.guardian.co.uk/technology/2013/may/27/google-eric-schmidt-change-law-tax
"At least Google's profits are going somewhere useful - like self-driving cars"
Wow just wow lol, you couldn't come up with something better than a self driving car for what google is helping everyone with? The self driving cars that may or may not ever see the light of day and that everyone would be scared to death to use.
I would trust google to drive me in a car once im dead thats about the soonest they will be doing that thanks very much.
A couple of points:
1) The current trend in the global economy is towards automation. Under that scenario it's easy to see the effects: you will have a few people and companies with lots of money and everyone else in low-paid service jobs. The fact is that corporation tax will have to be large just to stop a revolution.
2) Saying that GMail and Facebook offer 100bn of "surplus value" to consumers, and this should be tapped, is another way of saying "we should charge consumers more". As it's an Orlowski article, this is a similar argument to the piracy = lost sales argument. Even if it's true, consumers don't have a spare 100bn lying around, so what *don't* they buy to pay for e-mail?
"Even the SERVICE jobs are being automated. Think self-checkouts, voice-recognition expert systems, and so on. Pretty soon, the phrase "There's just no place for you" is going to be alarmingly common."
Yes. We will have armies of unemployed. Expect 1) revolution and anarchy, or 2) a massive war to kill off lots of young people.
> Even if it's true, consumers don't have a spare 100bn lying around, so what *don't* they buy to pay for e-mail?
No, I definitely have a couple of mill down the back of my sofa I just haven't been bothered to spend yet. I would definitely use it for FaceBook and GMail if only the Free Market would just give me the chance!
1) The current trend in the global economy is towards automation. Under that scenario it's easy to see the effects: you will have a few people and companies with lots of money and everyone else in low-paid service jobs. The fact is that corporation tax will have to be large just to stop a revolution.
You aren't taking it far enough, who are those service jobs going to service? You're talking about a situation where there are only 100 or so people in the entire world with the money to be able to go out to eat. How many restaurants do you really thing can be supported in that situation?
You're wrong.
I'll give you one example. I've just worked on a project that used Amazon's cloud.
Hardware costs before were 1 million a year.
Putting it on the cloud dropped that to 80K.
That's without moving to spot instances (you bid for the machine) or reserved instances (you sign up for a year, two years for a cheaper rate).
That's not a fat cat in the middle. It's hard cash savings.
Just where does this €100bn come from?
Would workers get higher wages to pay for it or would they just spend less on other things?
By providing a free service, they enable people to pay less to multinationals and more in their local shops.
The less I spend on emails the more I spend on apples (at the greengrocers!)
The figure comes from here, I suggest you read it carefully. There are costs to "free" I didn't have time to mention - a bit off-topic here.
http://www.mckinsey.com/insights/media_entertainment/the_webs__and_8364100_billion_surplus
"The less I spend on emails the more I spend on apples (at the greengrocers!)"
No. People buy as many as apples as they feel they need. They don't splurge £200 in Apples in one go and then let them go moldy. By contrast the willingness to spend on cultural goodies is enormous, it's a discretionary purchase, and we've all splurged. McKinsey is simply pointing out the obvious: we like paying for stuff. There is a huge disparity between what we could be (gladly) paying for and what we actually spend.
If the economy is bigger there are more opportunities for the taxman: more employees (income tax), more profits (corporation tax), more capital changing hands (capital gains tax).
Your reference to "multinationals" is particularly weird, because your logic entrenches the dominant position of a small number of US oligopolies, at the expense of many tiny local UK businesses (eg, games studios, small imprint poetry publishers, magazines). These are things we're quite good at. And these are businesses that generally pay their taxes, too.
a) Good article although in your comment title I believe the original reference is TANSTAAFL - albeit I understand the reluctance to endorse the implied grammatical horrors.
b) Its in part also a failure of tax simplification and that's not something most corporates feel easy about right now - it would be too tempting politically for HMT to go for a short term taxes and resulting in a lower overall tax rate under the guise of simplification. 'closing the loopholes' or at least implied but never identified loopholes without tax simplification seems unlikely, especially with the HMT's beloved non consultation approach claimed to prevent tax loopholes aka budget secrecy. Working well so far isn't it?
c) Its also in part a failure of the tax transparency promoted by TPA on employment taxes including hidden employment taxes like employers NI. There has been a clear move to taxing people not employers - that's largely sensible for many reasons but handled in an opaque fashion. Not least as we might query the value of our taxation levels in a more democratically meaningful way than companies can were the true taxation level exposed.
d) The conflation of issues around competitive tax as opposed to competition policy does not help the public debate and I object strenuously to HMT and BIS not responding porperly to the poor debate and abuse of PAC by Hodge the dodge. As with so many things using tax is politically expedient - which tends to suggest competition policy is actually in need of an overhaul (a real one this time!).
e) Money is fungible - who knew :) .
To the poster saying you can't get less that 0% - a competitive tax is not the same as a lowest tax. The value of tax paid is highly questionable in the UK though and that requires equal urgent attention. If you have well paid employees especially in London you have to compensate for the additional social costs and transfer of funds outside of the home counties to less commercially sensible locations, doubling up of personal costs such as health insurance and education services and resulting higher costs of commuting, TSB style redistribution, poor access to academia etc.
"No. People buy as many as apples as they feel they need. They don't splurge £200 in Apples in one go and then let them go moldy. By contrast the willingness to spend on cultural goodies is enormous, it's a discretionary purchase, and we've all splurged. McKinsey is simply pointing out the obvious: we like paying for stuff. There is a huge disparity between what we could be (gladly) paying for and what we actually spend."
However, since people in the UK are broke, and aren't saving anything, any extra purchase of email, etc., will have to come by sacrificing something else: we'll just move to a different point on the indifference curve. The question for the UK economy is: is the spending that is cut going mostly out of the country, and the spending that is increased mostly staying in the country?
The reality is that many large Internet companies are from the US and don't pay UK tax. We cannot change e-mail address easily unless there is some mandated address migration service like for mobile phones, so millions of people would have to pay Google, at least in the short term.
But let's examine the McKinsey report, and the breakdown of the "consumer surplus", i.e., stuff people haven't yet got raped by corporations for, such as air. More than half of this surplus comes from e-mail, search, IM and social networks.
Search is dominated by Google and Microsoft (US corporations paying no UK tax), social networks basically means Facebook (US corporation paying no UK tax) and IM means Skype, really (US corporation paying no UK tax). Giving them more money doesn't really seem to improve the UK tax position. The idea that payment will suddenly means that a brand new search engine can be developed that will compete with Google, simply because of the high barriers to entry. Social networks and IM are similar, as the high barrier to entry here is userbase.
E-mail is the only place where you could argue that UK companies could capture some of the market, and only if it becomes easy to change your e-mail address.
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