By Amanda Vigar, Managing Partner, V&A Bell Brown LLP
After years of pontificating by politicians, it appears that the Google tax saga has reached another significant milestone.
I suspect it won’t be the last we hear about it as the media continues to whip up an often inaccurate or at best misleading campaign against multinational companies that are perceived as the spectres at the feast. The result is that, while the technicalities are pretty meaningless to most of us, the “lost tax” feels very real!
Politicians need to wake up and stop being surprised that companies like Google take advantage of the overly-complex international tax system those very politicians have allowed and indeed often actively encouraged to develop. That may sound controversial, but tax is an area where for decades countries have competed to be more attractive to the multinationals they’re now turning against.
As a result, instead of an in-depth review, they constantly stick plasters on various bits of the tax system that pop into pubic view for one reason or another where they, or often the media, perceive there is suddenly some unacceptable level of tax leakage.
It has got to the point where, if we really want to solve the perceived issues, we need to rip up the vast majority of the 21,000 or more pages of tax law. At present all it really serves to do is line the pockets of aggressive tax advisers looking for loop holes as if they were involved in some playground game.
If we want a truly level playing field for all UK businesses where there is no point going in for tax planning schemes, then there has to be a system that makes that exercise pointless.
But what will it look like? Do we want a flat tax system? Or a capital asset based tax? Or a turnover not profit tax? Well, all of them have major pluses and matching major minuses despite what their various proponents will argue.
By the way, despite what certain politicos have been implying, corporation tax is (currently) based on profits not on revenues and certainly not on revenues that are earned by entities based outside the UK.
So, it is quite possible that Google’s £130m settlement is absolutely the right amount of tax at the full rate. Indeed, it feels as if Google may have been trying to find a way to pay tax (as Starbucks did before them) for PR purposes and may be more tax than it really needs to pay under the law.
The biggest difficulty in all of this is our ‘Googleworld’ is becoming borderless. If it wanted, Google could quite legally pay no corporation tax in the UK because they don’t actually require a presence here at all.
Everything it does could be done out of Ireland, the US or any other country with robust internet facilities. Before whinging too loudly, we should be looking at the total tax paid by those evil multinationals, not just the corporation tax! The fact is that by being here Google is generating and paying UK VAT, UK National Insurance and indirectly via its UK employees, UK income tax. Surely that has to be better than Google withdrawing its UK physical operations leaving HMRC getting little or nothing at all?
And remember why these household names are trying to save tax – pressure from shareholders to make a good return. So, who are these greedy, antisocial and unsympathetic shareholders? Well, look in the mirror and you may well see one or at least see a beneficiary of one.
It may come as a surprise, but your work place pension scheme will be pushing those very companies that are being criticised to enhance the value of your pension! You might well be very disappointed on retirement if they did otherwise.
Giving the multinationals a good kicking may make us feel righteous and generate a warm glow, but could just mean the UK giving up jobs and your pension scheme losing value as they get fed up with being the whipping boys of the UK media and so-called public opinion and take their business elsewhere!
So, the moral of the story is that you need to be careful what you ask for. You might get it and then find you have to pay for it through your tax return!