back to article Oi, UK.gov. WHERE'S THE DETAIL on your Google Tax?

Tax experts have raised "serious doubts" over the government's ability to implement a "Google Tax" in just four months. In his Autumn Statement this week Chancellor George Osborne pledged to slap a 25 per cent tax on companies making profits in UK but diverted abroad. However, the Treasury did not supply any more details in …

  1. Longrod_von_Hugendong
    FAIL

    Tax on profits...

    Look we aren't making any, well that was easy to dodge.

    http://i2.kym-cdn.com/entries/icons/original/000/000/554/facepalm.jpg

    1. Arbee

      Re: Tax on profits...

      The idea is that you are taxing the profits the multinationals *would* have made if they had not transferred the profits to other countries. Since the tax-rate of profits is only 21% anyway, I think the idea is more to get companies to declare them in the UK at 21%, rather than have an expensive court battle followed by a rate of 25% on those profits.

      In practice, the law is likely to be a massive pig to write, but the above is the principle behind it...

      1. wikkity

        Re: Tax on profits...

        > but the above is the principle behind it

        I'm not convinced, it should be but not what I believe is their actual intent. Given how difficult it will be to write, never mind the legalities involved and the fact that there are global attempts to do this I can not see how this will achieve anything. I find it hard to believe the government has anything up their sleeve to implement this and think that this is nothing but some pre-election posturing to gain some points with potential voters.

      2. Irongut

        Re: Tax on profits...

        Nah the principal behind it is there is an election coming up and they want to win.

        Anything else is just gravy.

      3. Doctor Syntax Silver badge

        Re: Tax on profits...

        " I think the idea is more to get companies to declare them in the UK at 21%, rather than have an expensive court battle followed by a rate of 25% on those profits."

        I'm sure you're right. Plus a bit of negotiation with HMRC on what to declare as profits. No doubt Google, Starbucks & the rest will still end up transferring a good deal of their profits but not as much as before.

        The objective is £5b. If HMRC have a BigCorp down for 10% of that go in asking for 15% & let them wrangle it down. HMRC gets their £5b overall, the lawyers get their new cars, the BigCorps get the rest & everyone's happy. Next year the target gets set a bit higher...

  2. Tim Jenkins

    "...having the potential to unlock "radical" change...."

    Presumably the 'radical change' being which model of luxury SUV your average 'tax barrister' will be able to drive to their place in the Cotswolds once the court cases start arriving...

  3. Anonymous Coward
    Anonymous Coward

    Stop taxing profits

    Start taxing gross income at, say 5% (or whatever figure).

    Job done.

    1. ratfox

      Re: Stop taxing profits

      Quite apart from the fact this would bankrupt companies with thin margins (everybody but luxury brands), it would do nothing to solve the Google problem. Because Google has almost no income in the UK. All advertising contracts are signed with Google Ireland, who does not report its income or profit to the UK. In fact, just by the last point, I don't see too much how the UK could tax profits from a company who does not have an obligation to report said profits to the UK.

      1. Anonymous Coward
        Anonymous Coward

        Re: Stop taxing profits

        "Quite apart from the fact this would bankrupt companies with thin margins"

        No it wouldn't. The rate will be set at a fair % so those not evading tax see no difference in the final figures. Heck, they might see a lower overall tax rate as the evaders are forced to pay.

        "All advertising contracts are signed with Google Ireland"

        Well that's nice for all the advertising in Ireland, but the advertising in the UK raised income; that gets taxed. I don't give two damns where the company is based, the money is raised in the UK by whatever means; it gets taxed in the UK.

        All the companies evading tax need to be brought to book. Ireland (and Holland,**AND** London) should be facing fines from the EU for aiding in tax evasion.

        1. jonathanb Silver badge

          Re: Stop taxing profits

          So if Apple Ireland advertises its latest Jesus Phone on Google Ireland, and British people see those ads and order the phone from Carphone Warehouse, who in turn get them shipped over from Ireland, how much tax does George Osbourne get from the advertising revenue.

      2. I ain't Spartacus Gold badge

        Re: Stop taxing profits

        ratfox,

        You can make Google obliged to report any profits relating to the UK. They sell advertising both globally, and specific to the UK market. Now you might not be able to capture tax on the global stuff, but anything advertised specifically to UK customers is relatively easy to demonstrate.

        There's huge room for fights here. There will never be a perfect tax system that doesn't over-burden companies with regulation or tax, or let them take the piss. But we're currently at the extreme piss-taking swing of the public policy spectrum, and so naturally (as these things do) there's a reaction against that. We'll probably start moving too far back the other way.

        This is another facet of globalisation. It's had many positive benefits, but also some costs. Society reacts slowly to change, and so we're still only scratching the surface of what we need to do about it. But big companies are really taking the piss on tax, they know it, everyone else knows it. They're rubbing everyone's faces in it, and maybe their executives are stupid enough to think they can get away with it forever. But times have changed, public mood has changed, and governments in the West are in desperate need of more tax revenue. Like banking, the sector as a whole needs to start behaving more reasonably, and in a manner that is sustainable in terms of long-term public opinion. Or the chances are they'll get regulated to buggery.

        Populism (of right and left) is on the march in politics. Especially in Europe. That's changed the political landscape. A lot of things that have pretty much been settled for the last few decades may change dramatically. Or not. Economics is changing too. China's rise is looking likely to slow, because you can't bankrupt your customers without eventually screwing yourself too. This is a lesson that huge trade-surplus economies like China and Germany are going to learn painfully over the next few years - along with certain multi-nationals who rely on mixed market Western economies for their survival but don't want to pay the taxes that make them work.

        1. LucreLout

          Re: Stop taxing profits

          You can make Google obliged to report any profits relating to the UK.

          You can hold the sentiment. You can even try to make it real. But the chances that you'll get anywhere near 21% of profit from Google as it relates to the UK is the stuff of nonsense. Sure, you'll get 21% of declared profit, but what you'll see is a massive amount of R&D cost being migrated here, along with expensive charges pertaining to the group head office, amongst many options, all of which will reduce the declarable profit. You'll get 21%, but Google will be making a lot less than you think it will and a lot less than it transfers to Ireland now.

          big companies are really taking the piss on tax, they know it, everyone else knows it

          That's an opinion, not a fact. Another opinion is that big companies are paying whatever is due under the current system, therefore it is our legislators and public officials whom are taking the piss in assembling such a system.

          maybe their executives are stupid enough to think they can get away with it forever

          Even Chinese executives don't look forward to infinity. The average tennure of a CEO in the FTSE is about 5 years, give or take a couple. They just don't care what happens five years from now as they'll have been retired, and will have banked lucrative stock options, bonuses, and dividends in that time.

          the sector as a whole needs to start behaving more reasonably, and in a manner that is sustainable in terms of long-term public opinion

          That's really over estimating the power of public opinion. Lets take Google as an example... So they get pushed out of the UK by taxes; does that mean they stop doing business here? Nope. They just serve up generic adds instead of UK specific ones. A BMW 3 series is essentially the same here, as it is in France, or in California etc. No benefit to the public or the treasury in that as the adds will be sold abroad.

          I'll offer you a bet before the detail on this tax is ever released. The sum total raised from it in the first year of operation will be less than 21% of the profit Starbucks or Google or Apple would make in the UK without any fiscal finesse or structuring of revenues, royalties, IP, transfer pricing, or other such techniques. £50 to the RBL to make it interesting? In the interests of full disclosure, I once worked for a company that was involved in tax arbitrage so understand the process pretty well.

          I'm not saying it's right, by the way. Your morality based view of right and wrong will differ in places from mine and the next guys. All I'm suggesting is that unilateral action cannot work in a globalised market. Any clampdown has to be a global effort or it cannot succeed.

          1. I ain't Spartacus Gold badge

            Re: Stop taxing profits

            LucreLout,

            I totally agree that it's going to be impossible to raise all the tax that a government theoretically should be able to. They have set the target very low (so they're not unaware of this) It's just too complicated. I also agree that it's very hard to get the information you need to tax accurately, and companies can keep moving the goalposts (and the money) around. Finally I also agree that internationally coordinated action is far more likely to be effective at raising money, as well as being far more likely to do less harm than good.

            But big corporations in the end do not set the terms of the debate. Governments do. In the extreme, if corporations make it impossible to get the information needed to tax them accurately, governments can just guess - and take any amount they want. Obviously that's liable to drive away business.

            But Apples second largest market in the world is the UK. That gives the UK government a certain amount of leverage in the power-play against Apple. Should it choose to use it. I think the UK may only be third or fourth biggest for Google, but it's still many billions of profit a year. Even a few hundred million in taxes each year will not therefore drive them out of the market.

            How powerful is public opionion? In the long term, quite a lot. Facebook could die in a matter of months if they truly piss the public off. They're a one-trick pony after all.

            Google are becoming synonymous with tax-evasion and privacy-abuse. That's not good for the health of the brand. Look at Microsoft, they are dangerously close to becoming totally irrelevant in the personal computing market. Despite Windows Phone being rather good.

            I said in my original post that it would be very hard to tax profit from global advertising (basically brand advertising from global companies). But anything that has a price in sterling, is from a UK only company, has a link to a UK sales site, or even a link to an internation sales organisation (but their UK arm), is going to be easy to track. And can therefore be taxed. If a company chooses to arse around with head-office charges, dodgy transfer pricing, franchise fees etc - then they can be tax audited to within an inch of their lives, and made to justify every single one of those charges, until it's cheaper to pay up. Or a law can be passed setting allowances for transfer pricing. Or a global company could be forced to provide a complete breakdown of their global books, down to every paperclip - and the Inland Revenue work out their liabilities and charge them for the privilage of getting say Ernst & Young to do the sums too. Governments can pass laws that say almost anything.

            It's hard to know what this policy will lead to. It could just be a quick pre-election PR stunt. It could be the first part of a 20 year process (mostly involving inter-government negotiation), or something in between. And I'm sure that even if this is the first skirmish in a long war - it'll have a small effect. But it'll be interesting to watch it play out.

            My point is that multi-national companies in recent years have taken unprecedented steps to avoid paying any tax. Instead of using loopholes and accounting to lower their bills - they seem to be aiming to have no bills. Part of that is the European single market rules being exploited in ways that weren't planned. I also suspect a good part of it is actually going to turn out to have been fraud (see the banking industry for examples). At one point Google were claiming all their advertising contracts were in Ireland, yet had a sales force based in England - I wonder how close to the wind they were sailing there?

            I think it's partly cultural, and that may (or may not) change. In the 90s recession there was a medium sized non-retail bank got into trouble in London. Nobody knew about this until something like 2005, when the Bank of England admitted it. They've got everyone together, and hammered out a solution. That was possibly the last hurrah of the old boys network in the City. Culture changed, and that kind of cooperation went out the window. So when the inter-bank system broke down in 2007-2008, the players weren't able to get together and sort things out in an orderly manner. Everyone knew the shit on their books would have to come out eventually, but seemingly couldn't bring themselves to admit it, even in secret - amongst peers who were equally deep in the brown and smelly. That would have made the crisis a lot less painful, and was in their own best interests. But the culture of the industry no longer allowed it. Equally that culture has turned out to eb riddle with deception, fraud, stupidity, lack of risk control and short-termism. Re-building banking regulations is a huge task, and it'll probably be ten more years before governments finish constructing the system. Who knows how long it'll take for the industry's culture to change. But change is inevitable.

            The question isn't why do you expect you can change things? Instead it's, why do you think things will stay the same in a system that's only been like this for a handful of years?

            1. LucreLout

              Re: Stop taxing profits

              But big corporations in the end do not set the terms of the debate. Governments do.

              They should, but they don't, not really. Last time the pips squeaked (70s) and talent and wealth fled the country for a more welcoming climate, the government understood that in a globally connected world, many of the jobs that pay for its spending programs are wholly portable. The tax revenue cannot be assured. Government of the kind we have now is in its last hurrah.... they just haven't realised it yet.

              In the mean time there is the EU. I can incorporate in Luxembourg, or Holland, or Ireland, or anywhere else I choose, with free access to the UKmarket by law. There's no specific means open to the government to review Apple's books or to garner more than a trivial amount of tax from them should Apple not wish to pay more. Passing laws won't help that because the EU court is supreme over our own.

              Google are becoming synonymous with tax-evasion and privacy-abuse. That's not good for the health of the brand.

              Its fine in a time when everyone else is doing it. Starbucks seems as busy as ever. The Fanbois seem to have the latest shinny shinny. And google still slings more ad's than anyone else. And so it goes.

              And can therefore be taxed

              Only profit can be taxed, and profit is ephemeral.

              It's hard to know what this policy will lead to. It could just be a quick pre-election PR stunt.

              Unfortunately, intent aside, that is the sum totoal of all this law can bring.

              multi-national companies in recent years have taken unprecedented steps to avoid paying any tax

              Yes, they have. And that is the new normal. It will be the standard operating model until there is co-ordinated action to stop it. Why? Well, because if you don't do it and your competitor does, they'll have eaten your lunch long before the politicians get their finger out.

              Part of that is the European single market rules being exploited in ways that weren't planned. I also suspect a good part of it is actually going to turn out to have been fraud

              It can't be fraud because all structures have to be declared to the treasury at the time of use. If they approve it then its legal until a judge states that its not and it canot be retrospectively made illegal even though the taxes can be retrospectively claimed by HMRC. Transfer pricing is a little different, but well within the legal framework. The framework won't be changed retrospectively as that would be illegal in itself.

              The question isn't why do you expect you can change things? Instead it's, why do you think things will stay the same in a system that's only been like this for a handful of years?

              I expect things to change. I expect them to change a lot. But I don't expect that change to accomplish anything you would view as constructive unless and until there is global agreement on corporate taxation & regulation, and that Sir, will be a very long time coming.

              It's not so much that I disagree with you on principle, though I do have a preference for avoiding taxes due to what I see as the unmitigated scale of public sector waste, it's more just that I don't believe your changes are actionable unilaterally and I'm not wholly convinced they'd achieve good things for the country were they so enacted.

  4. Pen-y-gors

    Yippee!

    Well, yippee if you're a lawyer, accountant or tax consultant.

    This won't raise a penny extra in tax - what it will do is transfer another few hundred million a year to the dodgy accountants and tax consultants who advise Google et al. while they argue over exactly how much profit they 'would' have made.

    Recipe for several hundred more pages of incomprehensible tax legislation, guidelines and footnotes. When will they ever learn? Clear, simple and precise laws are not necessarily good laws, but vague, fuzzy and complicated laws are always bad laws.

    1. Anonymous Coward
      Anonymous Coward

      Re: Yippee!

      You have to remember that it is the same lawyers and tax consultants that advise *all* of the political parties, e.g. by providing senior staff to work on site free of charge. They're also involved with helping the civil servants draw up the resulting legislation. I expect the laws read exactly as intended.

  5. Graham Marsden
    Holmes

    " the move was likely a pre-election sop to voters"

    No? Really...?!

    Gosh, I NEVER would have guessed...

  6. splodge

    "He added the move was likely a pre-election sop to voters." Surely not...

    Even if they do implement something, the EU will just overrule it.

  7. Doctor Syntax Silver badge

    'George Bull, senior tax partner at accountancy firm Baker Tilly, said: "The government now has to produce a new tax law in the next four months and get it up and running - that is something I have serious doubts about."'

    Does he really think they'd not have started work on this before announcing it, maybe several months before?

    1. Andrew_b65

      Announce first, act later

      You have to admit that the current UK government does have a track record of announcing policies before thinking them through, then quietly shelving them a few months later.

      They seem to treat their policy announcements more like 'sounding boards'. See what the public / press response is, get a few ideas of how implementation might work, then revise / retract accordingly.

      1. Doctor Syntax Silver badge

        Re: Announce first, act later

        I think this one's been getting plenty of public comment for long enough for HMRC to have something drafted by now.

    2. Slapstick Gandhi

      "Does he really think they'd not have started work on this before announcing it, maybe several months before?"

      Sounds about right TBH

  8. codejunky Silver badge
    Facepalm

    Wait!

    Ill thought through tax! Never! In this country? I would never believe it.

  9. Richard Wharram

    But they already comply with the law

    Albeit within a gnats chuff. Since they've already justified to HMRCs satisfaction why the profits are sent abroad (branding etc...) then where exactly is this tax supposed to bite? Except in the ballot box.

    I'm not saying it's right but HMRC already accepts their arrangements.

    1. Anonymous Coward
      Anonymous Coward

      Re: But they already comply with the law

      I get the impression that the plan is to change the law.

  10. Anonymous Coward
    Anonymous Coward

    Tax havens...

    The various crown dependencies - with rather more clout than you expect for the size - will stop this dead.

    The right way to do this is to ditch corporation tax entirely, and simply tax any money moved either outside the company or outside the tax regime.

  11. briesmith

    No Need for New Law

    This is yet another example of how pathetic HMRC are.

    Leave a quid off your self-assessment and they'll rip you a new arsehole out of which to shit the unpaid tax, the penalties, the interest and so on. Fail to tell them about a change in your circumstances and they'll send the bulldozers round to demolish your house.

    But if you're a multinational everything is so different.

    There is already enough tax law to bring these companies to book. Costs arising from unjustifiable levels of Transfer Pricing can be simply ignored if the Revenue choose to and the tax calculated on the resulting restated profits.

    Same applies to unjustifiable charges levied for use of brands and intellectual property. If they are at unreasonable levels they can similarly be ignored and the tax levied as though the charges were either not there at all or were imposed at a more reasonable level.

    HMRC just needs to treat these big companies the way they treat little ones and remember if its Stasi time for SMEs it should equally be Gestapo calling for the multinationals.

  12. JassMan
    Trollface

    They had better write this law pretty quick and get it right

    TAFTA is coming even though not one man in the street thinks it is a good idea. As soon as TAFTA is implemented, the global corps will just sue the government and get their money back because the main principle of the "agreement" is that governments should not be allowed to do anything that hits the bottom line of of the megacorps.

    Have you written to your MP yet?

  13. Tim Worstal

    Apparently

    the detailed proposals will be released as a draft law on Wednesday. If published at 1 pm, expect the first articles explaining why it won't work by 2 pm.

    As far as I can work out (and yes, I am such a sad sack that I do understand these issues) there's two possible end states here.

    1) It's entirely ineffective but they've "done something" in the run up to the election.

    2) They entirely change the basis of all international taxation of business.

    And if it's 2) I do rather expect them to have to go talk to a few other countries, negotiate a bit etc.

  14. J.G.Harston Silver badge

    A couple of decades ago I bought a book from a Japanese publisher, based in Japan and reporting its profits to the Japanese government. So, because I am a UK resident, the profit from that purchase should be reported to gov.uk?

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