What does Google mean by “fair tax”

EPA/BORIS ROESSLER

A file picture dated 21 October 2004 shows a man passing by a Google logo in Frankfurt, Germany. Alphabet, the parent company of internet giant Google, surpassed Apple as the world's most valuable company 01 February 2016, when investors snapped up stock after the company reported fourth-quarter earnings of nearly 5 billion dollars. The net earnings - 4.9 billion dollars to be precise - were an increase from 4.7 billion the year before. Revenue rose 18 per cent year-on-year to 21.3 billion dollars. Daniel Saurenz, an analyst with Feingold Research, said the news beat even the most ambitious expectations.

What does Google mean by “fair tax”


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Google and other US corporate behemoths would welcome more clarity on their tax liabilities in the EU, said their representative, Adam Cohen, on Tuesday, March 15, testifying in a special European Parliament Committee.

And yet it is precisely the lack of clarity that reduces Google’s tax burden.

Google

During the consultation, several MEPs criticized Google for paying too little tax in EU countries and said that its deal with the UK revenue service (HMRS) shows that Google was ethically “off track.”

HMRS had apparently looked into its transfer pricing arrangements and concluded that certain benchmarks needed to be adjusted. “That is normal for multinational companies”, he underlined, adding that Google pays a global effective tax rate of 19% and that the EU’s overall rate is around 20%.

Indeed it is “normal,” for corporate behemoths.

In February, Google was called to testify to a UK parliamentary committee about a £130 million back tax bill, agreed with the British tax authority that Labour party pronounced “derisory”.

Well, after the agreement with British authorities, Google paid £200 million in total for a decade’s revenue (2005-2015) of £24 billion pounds. £200 million may not be derisory, but it does not seem to be 20% of revenue.

Testifying to the British Parliament in February, Google’s global head of tax, Tom Hutchinson, claimed that the company’s worldwide tax rate over the past five years was about 19%, which he described as “a fair amount of tax to pay.” So, Mr. Hutchinson was referring to global fairness, as opposed to local.

However, one should recall that Google pays tax on “income.” But, income is just a word, not a fact of life.

Double Irish

It is estimated that Google makes in the U.K approximately 10% of its “revenue,” paying much less than 20% in taxes, using the “Double Irish” tax strategy. In this scheme, Google’s estimated £5bn annual sales are made by a company in Ireland with no “permanent establishment” in the U.K (tax-free).

Does that mean the company pays tax in Ireland? If that were so, it would be a simple case tax competition, because Irish corporate tax famously is 12,5%. But, the deal is in fact much sweeter than that. Ireland does not levy taxes from subsidiaries in other countries. Therefore, €18bn of Google’s non-US sales were routed through Dublin in 2015.

Dutch Sandwich

Then “revenue” is shifted to an Irish subsidiary set up in the Netherlands or Bermuda in the form of “intellectual property” charges, which are tax exempt. Google pays its subsidiary for being the owner of its intellectual rights, as a company.  In 2014 alone, Google moved €10.7 billion euros through the Netherlands to Bermuda, Reuters reported on February.

Google Netherland’s Holdings BV channels non-US revenue to a Bermuda-based, Irish-registered affiliate called Google Ireland Holdings. Despite being the legal heart of Google’s intellectual wealth, Google Netherland’s Holding has no employees and pays a tax bill of €2,8 million.

In the Netherlands, intellectual property rights are of course tax exempt. This way, Google not only avoids paying corporate tax in Europe, but also avoids triggering U.S. income taxes or European withholding taxes.

All of this is of course perfectly legal, as Google is operating within the law. It is in a word “normal.”

Another way of doing it

The EU now is contemplating obliging multinationals to set up shop in every EU member state. Google has serious reservations about the Commission’s Common Consolidated Corporate Tax Base (CCCTB) plans, which would require an establishment in every EU country. “This would be contrary to the principle of the internal market”, Mr. Cohen said.

Indeed, it may be even anti-European to suggest.

(The Guardian, The Observer, The Telegraph, Reuters)

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