Global tensions rise as tech firms under pressure to pay ‘fair’ amount of tax
- Summary:
- There is a distinction between what’s legal and what’s fair. And at the moment companies such as Google and Apple are arguably paying what’s legal.
The furore from the public and the increased media scrutiny comes shortly after the UK’s Chancellor of the Exchequer hailed a tax deal with Google, which will see it pay £130 million in back-dated taxes for the past 10 years.
The deal has been labelled “derisory”, as experts estimate that for the 10 year period Google has probably paid around £200 million in tax on estimated profits in the UK of £7.2 billion. That’s a tax rate of around 2.7%, when most businesses based in the UK pay a corporate tax rate of 20%.
That’s not to say that what Google is doing is illegal, it is almost certainly following the letter of the law. But there is a growing consensus that the tax structures that were established in the early 1900s, which focused on companies paying taxes where they are based, rather than where they make sales, are no longer fit for purpose in age of the internet.
The same is true of Apple, which could face a multi-billion dollar bill for back-dated taxes if a European Commission investigation goes against it. Apple paid £11.8 million in tax last year in the UK on profits estimated at £2 billion. However, Apple doesn’t believe it owes anything above what it has already paid.
Luca Maestri, Apple’s chief financial officer, told the Financial Times:
This is a case between the European Commission and Ireland and frankly there is no way to estimate the impact right now, we need to see what the final decision is going to be.
My estimate is zero. I mean, if there is a fair outcome of the investigation, it should be zero.
Deals and investigations
The news of the UK’s £130 million deal was praised by Chancellor George Osborne. Speaking at the World Economic Forum in Davos, he said:
This is a major success of our tax policy. We’ve got Google to pay taxes and I think that is a huge step forward and addresses that perfectly legitimate public anger that large corporations have not been paying tax.
I think it’s a really positive step. I think it’s a big step forward and a victory for the government.
*Slow clap*
I don’t mean to be facetious, but the Chancellor of the Exchequer claiming a victory for getting a huge company that operates in the UK to pay its taxes is a bit laughable.
As opposition leader of the Labour Party Jeremy Corbyn said during Prime Minister’s Questions this week:
Why is there one rule for big multinational companies and another for ordinary, small businesses and self-employed workers?
Quite.
Following the deal the deputy leader of the Scottish National Party has since called on the European Commission for an investigation, asking whether the payment could constitute state aid. The call will likely worry Google, which has already got EC investigations on-going regarding its dominance in Europe.
The EU’s antitrust boss Margarethe Vestager, told the BBC:
If we find there’s something to be concerned about, if someone writes to us and says maybe this is not how it should be, then we’ll take a look.
However, today it has emerged that the OECD has today signed a “Multilateral Competent Authority Agreement”, which it hopes will boost transparency regarding the tax arrangements of multinational enterprises.
The OECD hailed the signing of the agreement as “an important milestone” in increasing cross-border cooperation on tax affairs.
OECD Secretary-General,Angel Gurría, said:
Country-by-Country Reporting will have an immediate impact in boosting international co-operation on tax issues, by enhancing the transparency of multinational enterprises’ operations.”
Under this multilateral agreement, information will be exchanged between tax administrations, giving them a single, global picture on the key indicators of multinational businesses. This is a much-needed tool towards the goal of ensuring that companies pay their fair share of tax.
The agreement, which is not a new law, but rather an information-sharing tool, should make it harder for companies such as Facebook, Apple and Google to use international tax regimes to their advantage and says that firms must now pay tax in the country where their profits are made.
A question of fairness
I take the view that although a company is only ever going to pay as much tax as they can legally get away with, their is also a question of fairness. Although governments and political parties will say that there are immeasurable benefits to having these companies based in our regions and operating in our countries, to the average UK-based corporation paying its taxes, it won’t seem fair.
Analyst Richard Holway of TechMarketView hit the nail on the head in my eyes, where he said:
Google has always said that they pay all the taxes due. I don’t have sufficient legal cover to challenge that. But I do know that there is a quite clear line
between what is legal and what is fair. My own accountant has presented me with many legal (well at the time, legal) schemes to help me save tax. Few have passed the Holway Fairness Test and I am pleased/proud to say I have never done any of them. Why can’t firms like Google, Apple, eBay, Amazon, Starbucks etal think the same way?I think many feel that this is a victimless situation – bit like insurance fraud. But the small companies that Google has replaced – for example the many local newspapers which have either lost most of their classified business or went out of business because of Google – were UK HQed and paid their taxes here. Those taxes pay for our NHS, education, defence etc. If Google don’t pay their fair share, we all have to pay more. Ultimately it’s Google shareholders and the US that gains from the UK’s loss.
Of course, what is needed is international action to close the ‘legal’ loopholes. But I still don’t understand why big companies can’t apply a ‘fairness’ test rather than just a ‘barely legal’ test as at present.
Plenty more of this to come…