Whut?

I noted yesterday that the suggestion that Google, Facebook and other tech companies should pay tax on their turnovers would give rise to all sorts of problems, almost certainly be regressive, and be a move in the wrong direction on corporation tax reform. I suggested an Alternative Minimum Corporation Tax as an alternative where, in effect, tax be charged at a reduced rate on the global weighted profits that would appear to arise in a country if the local tax paid appeared to be inappropriately small, probably because of the use of tax avoidance activities. Some people asked me for a worked example, so I have done one.

Ritchie takes revenue that Google says comes from a country to do his calculations. Hmm. When ticked off about this he says:

Richard Murphy says:
February 24 2018 at 11:25 am
You are ignoring the concept of permanent establishment (PE) for taxation. This is a complex area, especially for what are in effect digital companies. But in effect it says that if an activity is managed in a territory then even if it is owned elsewhere it is taxable in the territory on the profits arising there.

Google et al have to sell. They do not do all of this on line: they have significant numbers of people doing so on the ground. The whole argument is about whether or not these people are the PE for tax.

I think they are: selling ads is the whole raison d’etre of these companies. They make value no other way. Their IT is useless without sales and valueless without them. So the sale is all that matters. I accept a fee for back office services – to the place where they really occur – is fair. But the argument is that the destination of the sale is key here. And I would contend – as do many – that tax law needs to reinforce this.

That is the direction of travel around the world. Until it happens what I propose is an interim step.

Yes. lovely. But those PE rules are what Google operates under now, aren’t they? So those “UK” revenues aren’t in fact taxed in the UK. They’re not even legally recognised as UK source revenues. In law they’re Irish income, aren’t they?

Sigh.

12 comments on “Whut?

  1. Just bear in mind that countries currently being paid the tax may be annoyed that people in other countries want a share of that money.
    And refuse to agree to changes in law.

    Hey, there will be UK companies who our treasury would lose money on if other countries wanted part of that tax.

  2. “UK source revenues” = not sure that has any legal meaning. They are UK sourced in so far as they are received from a legal person in the UK, but they are the income of an Irish trading company not carrying on a trade in the UK through a permanent establishment (as explicitly encouraged by EU policy).

  3. So, what does he say to do when Google closes down all those offices and moves everyone to a call-center in Bangalore?

    You can still buy your ads to be shown locally – you’re just no longer talking to a sales-rep inside your country.

  4. What does he say about UK based sales reps who sell internationally? Surely he cannot be meaning for the UK company to be taxed on profits from such a venture, what about the locals?

  5. “This is a complex area, especially for what are in effect digital companies. But in effect it says that if an activity is managed in a territory then even if it is owned elsewhere it is taxable in the territory on the profits arising there.”

    He’s obviously read somewhere that “a place of management” is one of the definitions of a PE but other than that all he’s showing here is that he doesn’t understand PE any more than he understands most tax, which is to say he doesn’t understand.

  6. Has anyone done an analysis of how much revenue the UK would lose under these sort of proposals? We’re a trading nation, we still sell stuff all over the world, how much of that sales revenue would be allocated to other countries and taxed accordingly? Whats Rolls Royce’s sales overseas? Glaxo? Barclays? BP?

  7. Spud is in full mind-vomit form today

    What now seems a long time ago I did the investigation that led to the first ever story on Google’s tax. The story was shared very quickly, as here from the Guardian. The rest you could say is history. Except, of course, for the fact that very little has actually happened as a result. Google still pays very little tax, and that despite the introduction of the so-called ‘Google Tax” by George Osborne.

    and

    The country-by-country reporting requirement of BEPS was, after all, designed by me

  8. @Martin

    Indeed. After years of academic debate on the subject things took off with the ‘Publish What You Pay’ report in June 2002 and the launch of the EITI in September 2002.

    That much Spud never mentions. What he does claim is that he had a discussion with Prem Sika in October 2002 and then ‘invented’ country by country reporting the next year.

    But all Murphy’s version of CbyC reporting (which no-one is adopting) really amounts to anyway is that companies should divulge their taxable profits in each country they trade in. Which they currently do in their tax returns. Murphy is just pissed off that he doesn’t get to see them.

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