/ Google's sales (not) in the UK?

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highclimber - on 16 May 2013
Basically, if I have a product and I pay a salesman in the UK to promote and sell my product but the transaction for that sale is paid to an Irish account, I can avoid UK corporation tax?

Is this really what google are doing? I'm trying to make sense of whether the UK gov. have anything to be angry about (apart from the billions in lost tax) considering that it sounds like a loophole which, rightly or wrongly, a big company is taking advantage of?

John_Hat - on 16 May 2013
In reply to highclimber:

International Tax Law is deeply complicated. The problem is that an international sale can be considered to occur in any number of countries.

In the case of the example above, is it Ireland (where the money goes - it's not like theres any money from that sale going to the UK and tax has to be paid from monies received) or the UK?

Now I passed exams in this kind of stuff 15 years ago, and it is not only deeply complicated, but changes all the time, as various countries enact various laws to try and claim a bigger slice of the pie. I wouldn't have a clue these days.

In relation to the posturing by others on the news (NOT the OP):

Obviously the companies will try and pay tax in the country with the lowest tax rates, and equally every country will want to tax any company under their own tax rates and get as much money off them as they can. Where one country gains, another will lose.

Things I am absolutely sure of: Google (and Amazon) will have complied entirely and exactly to the letter of the law. Parochial wittering about its "right" that "our" country "deserves" more money doesn't actually change that.

As I've said before on other threads, if people have an issue with International Tax Law, Amazon or Google are not the people to complain to.
highclimber - on 16 May 2013
In reply to John_Hat:
> Things I am absolutely sure of: Google (and Amazon) will have complied entirely and exactly to the letter of the law. Parochial wittering about its "right" that "our" country "deserves" more money doesn't actually change that.

So why is the government wasting money on these select committees if all it is is posturing for a slice of pie to which they aren't entitled to?

Surely all the money that the UKGov have missed out on is entirely due to their laws and rates and not Google's evasive tactics, as purported by the committees?
blackreaver - on 16 May 2013
In reply to highclimber: Sounds about right.
remus - on 16 May 2013
In reply to highclimber:
> (In reply to John_Hat)
> [...]
>
> So why is the government wasting money on these select committees if all it is is posturing for a slice of pie to which they aren't entitled to?
>
> Surely all the money that the UKGov have missed out on is entirely due to their laws and rates and not Google's evasive tactics, as purported by the committees?

I would speculate that it's largely to do with the issue being in the news and it being an easy target. All they have to do is get these companies in front of a committee and talk about how they're morally corrupt because they don't pay their fair share (whatever that is). Boom, instant approval from the newspapers.

As is so often the case the reality is far more complicated.

Postmanpat on 16 May 2013
In reply to highclimber:
> (In reply to John_Hat)
> [...]
>
> So why is the government wasting money on these select committees if all it is is posturing for a slice of pie to which they aren't entitled to?
>
> Surely all the money that the UKGov have missed out on is entirely due to their laws and rates and not Google's evasive tactics, as purported by the committees?
>
The irony of Margaret Hodge describing as "evil" a company that followed the tax laws which the government of which she was a member had 13 years to change is rich even by politicians' standards.
highclimber - on 16 May 2013
In reply to remus: So it's safe to say that the media, once again, is sort-of dictating what we should be seething about?
Jon Stewart - on 16 May 2013
In reply to Postmanpat:
> (In reply to highclimber)
> [...]
> The irony of Margaret Hodge describing as "evil" a company that followed the tax laws which the government of which she was a member had 13 years to change is rich even by politicians' standards.

Absolutely. This ticking-off of corporations by room full of MPs looking grumpy is getting tired. We clearly have rule that were not designed for modern commerce. So can we change them, please, rather than just sitting there looking cross?
John_Hat - on 16 May 2013
In reply to highclimber:
> (In reply to John_Hat)
> [...]
>
> So why is the government wasting money on these select committees if all it is is posturing for a slice of pie to which they aren't entitled to?
>

Coz it looks good in the media and wins votes, and all the MP's fancy another term.

Not being quite so cynical, I'd guess that the brighter MPs know full well that International Tax agreements are drafted over a period of years by teams of accountants and lawyers and the chances of them being changed by a crowd of short term MPs who don't know their witholding tax from their double tax relief, and, for that matter, get a bit confused when talking about those big numbers where you run out of fingers and have to use your toes, are Nil.

Hence all they can do is bluster about it. However given they have got to do something and bluster is all they can do, then bluster they will.

> Surely all the money that the UKGov have missed out on is entirely due to their laws and rates and not Google's evasive tactics, as purported by the committees?

Correct...
dissonance - on 16 May 2013
In reply to John_Hat:

> Correct...

or, just maybe a mix of the two.
Its fascinating although mildly scary the approach of if the government doesnt specifically forbid something then its the governments fault if it is done. People wonder why we end up with more and more laws.
John_Hat - on 16 May 2013
In reply to dissonance:

Ho-hum...

If you're a big international with interests and operations in, say, 200 countries (Amazon and Google), and you want to minimise the tax you pay overall. Shareholders, profits, and all that.

All 200 countries want a slice of the pie. All 200 countries have differnt laws.

I built a financial model once calculating tax with *seven* countries involved. It was probably the most complicated financial model I've ever built. Gawd knows what 200 looks like.

Actually, I think that they probably use the laws as the benchmark to work out what they have to pay and work it back from that. Which is why they are always perfectly on the edge of the law - coz they've taken the law as a starting point, not as an end point.

Bit like buying the car that fits in your drive, rather than buying whatever car you like and then woking out how to get it through the gates..

stevieb - on 17 May 2013
In reply to John_Hat:
But it isn't about Google trying to honestly pay tax in 200 countries. Its about Google taking money earned in the UK, paying corporation tax in Ireland at a lower rate, then paying a huge amount of this profit as a licence cost to a company in the cayman islands via the netherlands. This i a completely artificial construct set up to avoid paying tax. It may be legal but it is complicated for completely deliberate reasons.

I agree that the politicians are grandstanding, while refusing to cooperate in EU wide solutions, but the companies are also acting in bad faith.

There are two ways they will change behaviour, either when the law is changed, or when consumers choose to do business with local tax paying businesses. Not sure what the local alternative to google is, but there are plenty of alternatives to starbucks, amazon etc.
John_Hat - on 17 May 2013
In reply to stevieb:

You pay money into an ISA to avoid paying tax on your savings, and if you are able will pay the maximum you can. Is that acting in "bad faith"?
MG - on 17 May 2013
In reply to John_Hat:
> (In reply to stevieb)
>
> You pay money into an ISA to avoid paying tax on your savings, and if you are able will pay the maximum you can. Is that acting in "bad faith"?

ISA are set up and promoted by the government and clearly intended to be part of the tax system. They are also open to all.

Shovelling profits around ever more complex foreign overship structures, and myriad other tricks are not intended by the tax system. I think there is clear moral if not legal difference.

We heard yesterday that HMRC can apparently legally "agree" how much tax companies pay, rather than requiring all companies to follow the rules. Maybe they should "agree" largers sums than are strictly required as well as smaller sums in that case?

dissonance - on 17 May 2013
In reply to John_Hat:
> (In reply to stevieb)
>
> You pay money into an ISA to avoid paying tax on your savings, and if you are able will pay the maximum you can. Is that acting in "bad faith"?

oh ffs. Because that is so similar isnt it?
Well perhaps if i created a shell version of dissonance and then used an ISA in that name as well you might have a point.
MG - on 17 May 2013
In reply to dissonance: If you wish I can act as dissonance licensee in Sao Tome and Principe. I will divide any profts with MG Corp based in Luxembourg but owned by dissonance Inc in Sark who will grant a tempory copyright usage agreement. Overall we will probably make a loss and have no tax due.
woolsack - on 17 May 2013
In reply to MG:
> (In reply to John_Hat)
> [...]
>
> ISA are set up and promoted by the government and clearly intended to be part of the tax system. They are also open to all.
>

So is the tax system. Seems all governments want to be seen to be tax friendly to big multi nationals so that they provide politically advantageous amounts of employment,

(apart from when it becomes politically expedient to criticise them for taking advantage of the tax regimes that the same governments have introduced) Catch 22.
John_Hat - on 17 May 2013
In reply to dissonance:
> (In reply to John_Hat)
> [...]
>
> oh ffs. Because that is so similar isnt it?

It's identical. It is acting entirely within the law to minimise the amount of tax you pay.

The fact you don't like it doesn't actually change the fact that its entirely legal and above board.
MG - on 17 May 2013
In reply to John_Hat:

> The fact you don't like it doesn't actually change the fact that its entirely legal and above board.

So you and these companies say. It is more that HMRC are too timid or insufficiently resourced to actually check in court. As we discovered yesterday, this in itself is apparently legal.

Lots of things are arguably legal (particularly if you have money for expensive lawyers). That doesn't make doing them desirable, or criticising those who do them unreasonable.
dissonance - on 17 May 2013
In reply to John_Hat:

> The fact you don't like it doesn't actually change the fact that its entirely legal and above board.

I believe that is being challenged in Googles and Amazons case with regards to where the sales are actually done and so forth.

However you seem to be deliberately missing the point. That something isnt specifically illegal doesnt necessarily make it the right thing to do.

Most people move beyond have to have the rules strictly laid out at an early age or at the minimum take the able to justify if it appears in the papers approach.
ads.ukclimbing.com
dissonance - on 17 May 2013
In reply to MG:
> (In reply to dissonance) If you wish I can act as dissonance licensee in Sao Tome and Principe. I will divide any profts with MG Corp based in Luxembourg but owned by dissonance Inc in Sark who will grant a tempory copyright usage agreement. Overall we will probably make a loss and have no tax due.

sounds good I will send you my bank details.
eh wait a minute!! is this one of those 419 scams?
stevieb - on 17 May 2013
In reply to John_Hat:
This is a ludicrous comparison. ISAs are set up deliberately to encourage some level of saving by UK citizens.
If google have to set up an empty office in the Netherlands so that they can siphon off licence fees to the Cayman Islands where they do less than 0.01% of their global business, because the UK and Ireland wouldn't allow such a sham, it is, as I said, acting in bad faith.
I never said it was illegal, they clearly pay accountants huge amounts to make sure that it is legal, but they are benefitting from doing business in a stable democratic environment, without contributing to it.
Therefore MPs (though maybe not Margaret Hodge) have every right to criticise their behaviour. We are all perfectly entitled to criticise legal but dishonest behaviour.
EeeByGum - on 17 May 2013
In reply to stevieb: I take your point, but the whole purpose of a listed company in a capitalist society is to maximise profit and returns for its shareholders. They way you can do with is to grow revenue whilst reducing costs. Tax is a cost. Why wouldn't you try and minimumise your tax bill? Companies also exercise other legal forms of cost cutting exercise like sacking people and making efficiency savings.

You could argue that this practice is also morally questionable if you believe in an equal society that would like companies to employ people and give them a purpose in life, but sadly, the capitalist system doesn't work like that.

My American friends tell me that this is also an issue in the US with huge corporations paying no US tax. Facebook got a rebate last year because it is an R+D company for example.
David Riley - on 17 May 2013
In reply to highclimber:

Isn't this the good side of VAT ? Corporation tax must be insignificant by comparison.
Postmanpat on 17 May 2013
In reply to stevieb:
> (In reply to John_Hat)
>
> Therefore MPs (though maybe not Margaret Hodge) have every right to criticise their behaviour. We are all perfectly entitled to criticise legal but dishonest behaviour.
>
Why "dishonest"?

And why was the system enabling them to do this set up in the first place?

stevieb - on 17 May 2013
In reply to EeeByGum:
I understand exactly why they would choose to do it.
The reasons why they would choose not to do it are either changes in the law, or customers choosing not to do business with them. So highlighting their behaviour is entirely appropriate, and enables decisions to be made with more information.
stevieb - on 17 May 2013
In reply to Postmanpat:
I think inventing a large licence fee which bears no relation to cost, and administering it from a country where you have no significant business is dishonest. You may not.
EeeByGum - on 17 May 2013
In reply to stevieb: True. The problem, is that everyone does it to a certain extent. Even companies you might regard as being ethical in their tax matters will employ accountants who offset this or that against tax etc.

And then there is the good old cash economy. It would be interesting to analyse the tax affairs of the wealthy politicians who are calling for companies to pay more tax. I would be prepared to bet a significant sum on the fact that they will have various tax reduction measures in place.
Postmanpat on 17 May 2013
In reply to stevieb:
> (In reply to Postmanpat)
> I think inventing a large licence fee which bears no relation to cost, and administering it from a country where you have no significant business is dishonest. You may not.

Why are you focusing on the licence fee? The issue is whether the sales to the UK should be booked in the UK or in Ireland. For reasons I don't know it is common practice for sales to be taxed in the place they are legally contracted. in the global age that may be mad for it's not dishonest. It's just the way the system works.

Clearly it is logical for the license fee (also a normal practice) to be paid by the entity that legally transacts the business.

MPs should change the system instead of whinging about people following it.

GridNorth - on 17 May 2013
In reply to Postmanpat: I agree. MP's judging other parties moral standards. If it wasn't so laughable I'd cry.
stevieb - on 17 May 2013
In reply to Postmanpat:
I'm focusing on the licence fee, because the biggest issue is with the licence fee.
In 2009, Google Ireland made a gross profit of 5.5 billion euros but had an operating profit of 45 million.
Why get worked up fighting over 45 million when 5 billion has been channelled to Bermuda?
captain paranoia - on 17 May 2013
In reply to stevieb:

> This is a ludicrous comparison. ISAs are set up deliberately to encourage some level of saving by UK citizens.

It's not a ludicrous comparison; both ISA and tax avoidance are within the letter of the law, regardless of 'morals' or 'dishonesty'. Tax avoidance may be more complex than saving tax through an ISA, but they're both legal.

I agree completely with John; don't complain about corporations seeking to maximise profits by exploiting stupid law (as offensive as it might appear), complain to the lawmakers for allowing stupid law to exist.
snoop6060 - on 17 May 2013
In reply to highclimber:

My missus used to work for google selling adwords campaigns, she was very much in leeds. And her pay was primarily based on the amount of revenue she brought in from clients. IN fact she could earn multiple times her salary in bonuses based entirely on how much money she brought in.

So basically, they are talking utter bollocks.
Antigua - on 17 May 2013
In reply to highclimber:
> I'm trying to make sense of whether the UK gov. have anything to be angry about

Interestingly the UK Govt is currently lauding the fact that the new Star Wars film will be shot here in the UK. Strangely this good bit of fortune seems to coincide with a very new and favourable tax arrangement. Yet the UK Govt are condemning companies for taking advantage of similar schemes offered by other countries.

Hypocrites springs to mind.
Jon Stewart - on 17 May 2013
In reply to snoop6060:
> (In reply to highclimber)
>
> My missus used to work for google selling adwords campaigns, she was very much in leeds. And her pay was primarily based on the amount of revenue she brought in from clients. IN fact she could earn multiple times her salary in bonuses based entirely on how much money she brought in.
>
> So basically, they are talking utter bollocks.

Oh my! What a surprise. In common sense, conceptual terms they are bullshitting, and it is legal.

Working the tax system requires a specific kind of dishonesty, commonly known as "bending the rules". No it isn't illegal, yes, it is the government's fault not Google's (etc), but it always makes me smile the way certain people on here bother to construct arguments that make a pathetically weak attempt to say that this form of dishonesty is not what it is. It's inescapable: it's bending the rules; it is incompatible with honesty and integrity.

If you need it broken down further, honesty involves following the spirit of the law not just the letter of the law. Honesty understands the policy intent and acts accordingly, rather than seeking to undermine the policy intent to ones own advantage but to the detriment of the public interest. Should we rely on honesty to collect taxes? No! We should have robust policies and enforcement.

As for the ISA crap, I've explained already but here it is again. The government is in charge of taxation and have created a policy with the intent of allowing a specific sum to be saved by an individual tax free. So when I take out an ISA I'm following the policy intent. When Google bend the rules, they are bending the rules. One is honest behaviour, one is dishonest. Both are legal.

Bad policy fails to deliver the policy intent. Dishonest organisations exploit bad policy, and we should expect them to.
remus - on 18 May 2013
In reply to Jon Stewart: I think it is a little too strong to say these large companies are being dishonest.

It's all well and good saying they should work within the spirit of the law, but what does that mean when it comes to organizing the tax affairs of a company with sales and employees in hundreds of countries? The only starting point is to work to the letter of the law and the natural conclusion is what we have now.

More broadly, I think everyone agrees these companies should pay more tax. The question is how do we change the law to reflect this in such a way that we don't end up in the same situation 5 years down the line when new loop holes are discovered. Perhaps the trend of HMRC cutting deals with these large companies is the way to go? Who knows.
Jon Stewart - on 18 May 2013
In reply to remus:
> (In reply to Jon Stewart) I think it is a little too strong to say these large companies are being dishonest.
>
> It's all well and good saying they should work within the spirit of the law, but what does that mean when it comes to organizing the tax affairs of a company with sales and employees in hundreds of countries? The only starting point is to work to the letter of the law and the natural conclusion is what we have now.

I largely agree - but in the high profile cases where Margaret Hodge and co. have been looking really cross, the companies in question have been talking bollocks, e.g. Starbucks and their conflicting messages about the success of the UK business to shareholders and the Select Committee, and snoop6060's example of business being done that can be clearly and completed localised to the city of Leeds in the UK, when the associated tax is being paid elsewhere. It is not honest, and that can't be hidden from. But given that the system fails to provide a clear mechanism to practice honesty, it's somewhat rich of MPs to expect it.

> More broadly, I think everyone agrees these companies should pay more tax. The question is how do we change the law to reflect this in such a way that we don't end up in the same situation 5 years down the line when new loop holes are discovered. Perhaps the trend of HMRC cutting deals with these large companies is the way to go? Who knows.

How about someone actually doing some serious work, and re-engineering the international agreements so that they serve the interests of national governments and the people that elected them, rather than the interests of international businesses? Oh god no, too difficult, it would upset our friends in high places...
MG - on 19 May 2013
Jim C - on 20 May 2013
In reply to MG:
......
> We heard yesterday that HMRC can apparently legally "agree" how much tax companies pay, rather than requiring all companies to follow the rules. ....

What about the 'dodges' the football clubs arewere up to, Rangers in Scotland, and the bigger clubs in England, has that all been abandoned?


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