Ritchie on Google\’s taxes – still not getting it

Google Inc. avoided about $2 billion in worldwide income taxes in 2011 by shifting $9.8 billion in revenues into a Bermuda shell company, almost double the total from three years before, filings show.

Yes, yes it did.

Last week, the European Union’s executive body, the European Commission, advised member states to create blacklists of tax havens and adopt anti-abuse rules. Tax evasion and avoidance, which cost the EU 1 trillion euros ($1.3 trillion) a year, are “scandalous” and “an attack on the fundamental principle of fairness,” Algirdas Semeta, the EC’s commissioner for taxation, said at a press conference in Brussels.

“The tax strategy of Google and other multinationals is a deep embarrassment to governments around Europe,” said Richard Murphy, an accountant and director of Tax Research LLP in Norfolk, England. “The political awareness now being created in the U.K., and to a lesser degree elsewhere in Europe, is: It’s us or them. People understand that if Google doesn’t pay, somebody else has to pay or services get cut.”

But it didn\’t avoid or evade any European taxes by doing so. What it did was play the US corporate income tax system.

There has been no loss to EU budgets through this use of Bermuda at all.

The US system says that if you don\’t bring profits onshore then you don\’t pay US corporate income tax on them. You do of course have to pay all of the correct taxes elsewhere: but not the US ones. That is, of course, an issue for US law, not EU.

But there\’s more to it than this as well. A US company cannot use those offshore stored profits to pay dividends: to do that you\’ve got to take them onshore and thus pay the corp income tax. You also cannot fund share buybacks from them. It\’s even very difficult to lend that money back into the US corporation.

So, what can you do with it? Invest it. That\’s all you actually can do with it.

So, what\’s the end result of this $2 billion not being paid to Uncle Sam? Google has had to invest $2 billion more in something or other.

And the problem with Google investing $2 billion in something is what?

20 comments on “Ritchie on Google\’s taxes – still not getting it

  1. So, what’s the end result of this $2 billion not being paid to Uncle Sam? Google has had to invest $2 billion more in something or other.

    And the problem with Google investing $2 billion in something is what?

    Response:

    Using your logic, why should any multinational company pay tax, when they can invest that money in their own company?

    The point is, the reason why the budget deficit has ballooned in numerous countries is because numerous large corporations have stopped paying certain taxes (particularly corporation taxes).

    Yes, what they are doing is legal, but that does not mean it is not morally wrong. The point that many people have made is that we need a global regulatory framework that stops the Googles and Amazons of this world from playing the system.

  2. You’re seriously saying that the deficits ballooned because of multi-nationals?

    Nothing to do with the fuckin g socialists, and totally ignoring the extra income tax, VAT etc. that an expanding corporation generates? hmmmmmmmm?

  3. Yes, but we want companies to invest because that generates economic growth which creates jobs and leads to more taxable activity (like employment, wages, VAT etc).

    I would prefer to see Google investing $2bn in its business, knowing it would do so with a keen eye on efficiency and future growth rather than pay the same amount in tax to a government that will waste half of it due to inefficiency and probably squander another 25% on non-essentials

  4. @ A S Anand – “Using your logic, why should any multinational company pay tax, when they can invest that money in their own company?”

    Actually, any growing company will hopefully do this! If it is profitable (at the underlying level), it can then employ more people, invest in new offices, etc, all of which reduces its net profit and current corporation tax bill.

    And yes, that is exactly what we want? Increased employment, income taxes, VAT and then more corporation tax in the future from a bigger more successful company.

  5. “slightly tangential but did you see this story about how amazon operates a “zero profit business”. Difficult for them to pay tax in the UK when they don’t seem to make a profit anywhere.”

    I’ve said this about Amazon before. The reason they don’t pay much tax is mostly because they don’t make much money! There margins are only a shade over 1%.

  6. DM @ 8
    Yes. Jeff Bezos got to be a billionnaire before Amazon ever made any money. So he probably thinks that making a profit is for mugs, and that his business model of making a corner on the retail space (a monopoly, in other words) is the right way to go for internet megalomaniacs.

    His investors might disagree, and demand some dividends, eventually.

  7. “And the problem with Google investing $2 billion in something is what?”

    Thats so obvious its hardly worth answering.

    Because as all money and wealth belong to RM and his courageous State, its better it (ie he) spends it on some ludicrous ‘progressive’ scheme to extract rainbows from moonbeams, or some fashionable eco-wibble of the day, than allow Google to invest it as they see fit.

  8. A S Anand – have you ever looked at the different tax takes of the vaqrious UK taxes? Corporation tax is about 9% of the government’s tax revenues from this wiki page. I doubt that the ratio will have changed greatly since 2008.

    http://en.wikipedia.org/wiki/Taxation_in_the_United_Kingdom

    Fuel duties and business rates – which are remarkably hard to avoid and easy to collect, bring in almost as much as the absurdly complicated and hard to collect and highly disputed corporation tax. Just think how much time is spent by various accountants, lawyers and teams of IR staff and judges etc etc are spent on determining corporation tax returns…compared with the simplicity of business rates and fuel duties.

  9. Bloke in france – amazon hasn’t made much profit because they have grown so much. Last year turnover $48 billion? From a standing start less than 2 decades ago? I daresay investors are pleased, sure dividend isn’t large on half a billion profit a year but whats the increase in stock value for shares held? Whats the company profit in the year it reduces its expansion and simply maintains?

  10. “the reason why the budget deficit has ballooned in numerous countries is because numerous large corporations have stopped paying certain taxes ”

    Nonsense; corporation tax isn’t, and never was, big enough to plug the hole in government revenues.

    Even Murphy’s Tax Gap estimate of avoided corporation tax was only £9.2bn. The government deficit last year was £126bn.

  11. Using your logic, why should any multinational company pay tax, when they can invest that money in their own company?

    Sighs. Utter, utter misunderstanding of the situation. You’re with UKunthinking, aren’t you?

    1. There is a peculiarity with the _US_ corporate tax system to do with repatriation of profits. I’m not aware of anywhere significant else this applies to but it might. However, that peculiarity does not allow the money to be invested in the US firm – it must remain abroad.

    2. UK companies must pay tax on retained profits. End of. You pay it out as divi? You pay tax. You keep it in the company (whether for investment or to fill the exec swimming pool with fivers)? You pay tax.

  12. However if you use the money to expand your business, various tax allowances may apply and you may not pay so much tax. Its allowable for British companies to make losses. Even huge losses. So long as not in any way part of a multinational coffee chain or part of a multinational internet search engine company…. those apparently are not allowed to make losses.

  13. Pingback: Google supports spreading the wealth, as long as it doesn’t involve their wealth | motorcitytimes.com

  14. A S Anand – Are you Arnald under a pseudonym?

    The reason budget deficits have ballooned in various countries is that those governments have been spending money they don’t have in areas they shouldn’t be operating in- it really is that simple. If you sacked 2 million Public Sector workers in the UK, the net effect on the Private Sector would be zero, as most of them work in jobs like the EHRC, which is effectively unnecessary. That is the big issue, which Murphy,min the thrall of his paymasters at the PCS will never mention….

  15. @Ananad #2: “Yes, what they are doing is legal, but that does not mean it is not morally wrong. The point that many people have made is that we need a global regulatory framework that stops the Googles and Amazons of this world from playing the system.”

    Nonsense. There is no moral obligation to pay anything more than the law allows. OTOH, there *is* a moral–and legal–obligation to return maximum profit to shareholders.

  16. Amuses me when people use the word ‘moral’, like a company will steal money from its shareholders or demand extra from its customers to meet a moral tax obligation the law set by government does not require. Stealing is somehow more moral than paying additional tax?
    How long before the mob decide Costa coffee should pay more taxes? How long before they decide Jaguar should pay more taxes?

    Whose morals should be used? Osama bin Laden’s? How about the morals of the Iranian President? Or the morals of the Israeli president? Tony Blair? Some MP caught fiddling expenses? Some bird I met on the train last week? Whose morals?

  17. The point that many people have made is that we need a global regulatory framework that stops the Googles and Amazons of this world from playing the system.

    Ah, yes, a global regulatory framework in which such honest, upright governments as Russia’s, China’s, and Brazil’s will have a large say in designing. Absolutely no chance of any corporation playing a system designed by the people at the top of such sterling political systems!

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