Us, Google and The Taxman
This is the start of the a weekly discussion between members of the Economics Centre at the SOAS Policy Forum. This week we focus on Google’s tax deal with HMRC, and the debate around how corporation tax payments are handled.
Jonathan Kitson has been a member of the Policy forum since 2014 and is particularly interested in inequality, the rise of developing economies and UK public policy. Louis Akerman has been a member since 2015 and his main economic interests include the rise of China, the recent economic crises and how to reform the global financial system so that it is becomes both fairer and more stable.
“It seems fair to say that most people have not interpreted Google’s tax settlement whereby it pays £130m in backdated corporation tax as the “major success” that George Osborne proclaimed. Even the business secretary Sajid Javid broke rank on the issue, saying it was “not a glorious moment”, and no senior government figures have publicly supported Osborne’s claim. Estimates have surfaced that show that would amount to an effective tax rate of 3% rather than the 21% that Google is supposed to pay. Despite the government’s promise to get tough on tax avoidance little is actually being achieved, so what needs to happen?
Large multinational corporations are able to avoid paying UK corporation tax by exploiting the fact that corporation taxes are lower elsewhere in the EU, such as in Ireland where Google sends most of its European profits, and that ancient bilateral agreements mean that profits can easily be shifted between here and there. The UK government must combat this problem both by updating these bilateral agreements so that they no longer provide a tax loophole and campaigning for an EU minimum corporate tax rate so that there can no longer be a race to the bottom where governments and taxpayers lose out to corporations.
Those who are against enforcing the official rate of corporation tax say that it discourages investment and will scare businesses away from being based in the UK. However, investment can still be encouraged through better tax breaks for investment projects – especially since the UK has the least generous of these among all OECD countries – and competing to be the cheapest place to do business is not a race that the UK should be trying to win. Instead it should be trying to be the best place to do business with first class infrastructure, education and business environment.”
“Much has been made of Google and other large multinationals tax arrangements lately. Although the latest storm, which centres around a £130 million decade worth of back taxes, probably suffers from a lack of transparency it is nonsense to think that the taxman was going to let Google off the hook. The entire point of HMRC is to collect the legally right amount of tax, and this is what they have done.
This is legally the right amount of tax because Google are taxed on the profits located in the UK, and although Google’s global profits are $18 billion, the profit was mostly located in the United States, where Google has its really profitable parts of the business, and will be taxed on that profit by the US Government.
People are angry they pay taxes and corporations don’t. They are right – people pay taxes and corporations don’t – and it is the people involved in the corporation who ultimately end up paying them; its shareholders, workers and consumers. A review of the literature seems to suggest that “it is likely that workers’ wages are being reduced substantially — empirical estimates average at 57.6%—and the remainder is falling on capital, reducing investment and long-term progress in living standards.”
You might not like Apple, Google, Microsoft or Samsung, but it is obvious that through the profit motive they have improved the welfare of billions through their creations. Of course those in the UK working for MNCs are paying income, consumption and council taxes on their large salaries. The value we get from these companies isn’t the amount of tax they pay but the services they provide.
Perhaps a better way of raising taxes would be to scrap corporation tax altogether and increase the amount of tax paid on consumption, income or wealth. We should be making public policy on the basis that it has a good effect (yes, raising revenues) but also making sure it as few deadweight costs as possible and encouraging companies to sell us nice things.”
The views expressed in this piece are the opinions of the contributors alone, and do not reflect the position of the Policy Forum.