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Google's tax arrangements in the spotlight again but don't expect its business to be affected
Google is the new all-powerful monopoly playing by its own, typically US-centric, rules.
It might have previously had as its motto: 'Don't be evil'. But as Google has embraced its potential and corporate ethos it dropped it in 2015.
It certainly obeys the law but as is the case for many companies ensuring that what you do is supported by paper evidence and therefore is legal does not make it either fair, ethical or even honest.
I was once told by a US lawyer [I paraphrase]: "I can ensure that anything you do is legal as long as you are willing to accept complexity and pay me enough fees."
This seems to be the approach of Google. It is ensuring its brand and licensing arrangements are in tax advantaged locations and that billing is also done from tax advantaged locations such as Ireland in Europe. That, combined with complex Service Level Arrangements and Transfer Prices, ensures it can pay tax where it wants and how it wants. It might not help it at the corporate level but it certainly gives it the flexibility at the subsidiary level.
The total confusion of government about how to tax software service does not help and makes the whole situation much more complex and therefore arbitrary.
The UK, France and EU have taken very different approaches to tackle this problem. The UK seems to have had an innocent unless proven guilty approach and believed the statement that everything is for the best possible commercial reasons at face value, therefore extracting about £13m a year in tax from Google in the UK for the period 2005 to 2015.
The French, less trusting, are out to prove it is all a sham by identifying internal correspondence that invalidated the legal structure, targeting both maximum bad publicity and also £130m a year in unpaid taxes for a total of £1.3bn.
The EU is going for a fully transparent reveal of the tax arrangements to ensure that the glare of publicity and public opinion will make the objective totally transparent and hope that embarrassment and public commentary will encourage Google to pay up.
But Google has good tax accountants and only pays, even at the corporate level, an 18 per cent effective tax rate.
Will all this affect Google's business? I doubt it. First most users do not pay for Google, they benefit from it. The share of Google as a search engine is higher at 90 per cent in the UK than in the US where it is only 67 per cent. Secondly there is no realistic alternative.
In an industry where ‘winner takes all’, the sheer scale and reach of Google enables it to provide significantly higher perform services at a lower per user cost and therefore at a low price from which all of us benefit.
The only way would be to create a truly global taxation approach where tax would be due where benefits are raised. That would be hard. Maybe European countries should instead ensure that VAT is paid at a reasonable rate on all Google services provided in their countries as this at least would enable the local communities to gain some benefits.
At the moment the VAT treatment of cloud-based services is confused and in flux and provides many opportunities for playing one country against another. Another major problem however for governments is that with the internet there is no easy way of measuring and controlling where and how a service is provided and who and where it is consumed.
As the duty of care of directors is in the current environment first and foremost with the shareholders they in fact cannot pay more tax to anyone than they absolutely have to exercising average skills. If they did they could make themselves vulnerable to class action law suits by US shareholders. So governments have to make it clear these payments are compulsory not discretionary.
Jacques de Cock is a faculty member at London School of Marketing
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