Google tax dodging

[king_pellinor]

More on the tax dodging front.   Now Google's getting flak for only paying £6m tax on revenues of £395m, which is 1.5% against a headline tax rate of 24%.

Only, the headline rate is based on profit, not revenue.  So that numbers is about as useful as a chocolate teapot.  £6m tax implies profit of £25m at 24% - although of course 24% is the current rate, not the one that applied to the year in question; and it's not clear if that's tax paid, or the tax charge in the accounts (which would include deferred tax - basically, the impact of the differences between accounts profit and taxable profit, most of which tend to defer the payment of tax as an incentive to start doing business)  so we now seem to have an icecream teacosy.

But let's get our handy gooey and play with those numbers anyway - £25m profit on turnover of £395m is what, 6%?  A moderately decent margin - a bit slim for a modern high-tech company, perhaps.  But then, what does Google actually *do* in the UK? The odd data centre or something?  All the value of the company comes from intellectual property, and I don't think that gets developed here.  Data hosting is pretty low risk, so you wouldn't really expect a very high margin.

So, er, sounds like Google's playing fair, based on those numbers.

Now what I'd be interested in is the transfer pricing situation.  What does the revenue represent?  I suspect that it's just a commission on advertising sales.  So maybe the thing to do is question whether the revenue figures are at arm's length - but that sort of enquiry takes HMRC years to finish and no-one publishes the results anyway.  I'd be amazed if Google haven't been quite aggressive about their internal pricing, but then I'd also be amazed (having been there and talked to them about similar companies, that is) if HMRC aren't pushing back quite hard so the final position should be reasonable. 

So, at the moment once again all we we have is a number labelled  "Tax" in a vague way, which is much smaller than another number picked at random, and this makes Tax Avoidance.  *Sigh *

Comments

[bunn.livejournal.com]

Google currently says it has two datacentre locations in Europe - one in Belgium and one in Finland. Their advertising business was run for many years out of Eire, though I believe nowadays they do have a London office.

At any rate, if you are running Google Ads in the UK, your agreement is still with Google Ireland Limited, and if you aren't VAT registered, you pay them VAT at the Irish rate. (If you are VAT registered, you self-assess and pay VAT at the local rate)

So I'm guessing they pay most of their tax for UK business in Ireland?

[king-pellinor.livejournal.com]

Yes, they've had some stick for running things out of Ireland and paying Irish tax, rather than being in the UK like any proper foreign company. There seems to be some idea that if they have customers in the UK then they need to be based in the UK, which is a bit odd for a global net-based business.

I really do wonder how they manage to get £395m out of what they do in the UK.

[bunn.livejournal.com]

... whereas I was a little surprised it's not higher: there are a lot of people on Google adwords paying more than £1 for every click.

I'm not sure if Google Grants may be relevant? Google has a program where the US Google gives registered charities a 'grant' of $330 per day, to be spend on Google advertising. In theory I could be 'spending' £78211pa on ads, just for one charity, but of course it's not real money. Well, unless a lot more people click on 'sponsor a dog' it's not anyway.

[king-pellinor.livejournal.com]

Yes, but they're paying Google Ireland for that. No reason why it should hit Google UK's books - they seem to just be salesmen on commission.

[kargicq.livejournal.com]

Absolutely. Everything seems to be done through Google Ireland, so they should pay tax there. (I have no idea whether they do or not; that's where people should look, if they're determined to make a scandal.)

On a much smaller level (alas!), when I lived in the USA I paid tax there on my income both in the US and in the UK (letting out our house), and told the UK tax authorities what I had done and how much tax I had paid to the Americans. (I think that this was the right thing to do; certainly, nobody complained.

You know how much UK tax I paid for those four years? None!* That's 0% of my UK income! Nobody accused me of tax avoidance, but perhaps 38 Degrees would do so.

*Apart from complications arising due to not moving country exactly at the start of the tax year, and from the two countries having different tax years anyway. Which I'm now revisiting with my Dad...

[kargicq.livejournal.com]

Although a little research suggests that if anyone is upset, it should probably be the Irish. Google Ireland apparently pays silly amounts of money to license the use of assorted Intellectual Properties such as search algorithms -- from Google Bermuda, which owns all the IP. Hmm. However dodgy this may or may not be, it's not something that the UK can do anything about.

[wellinghall.livejournal.com]

I did what you told me to, and got 620,000 hits.

[jane-somebody.livejournal.com]

As soon as I read the title, I knew someone would insist on taking it as an imperative; if I'd reflected a bit further I might have guessed it would be you :-)

[wellinghall.livejournal.com]

That's me, nothing if not predictable :-)