So far, the effects appear slight. Tech giants are still reporting effective tax rates well below the lowest corporate rates, thanks to their armies of accountants and lawyers, says Jolyon Maugham, a U.K. tax lawyer and blogger. “Nobody pulls the plug on such machines without a fight,” he says.
At its core, the fight is about a system known as transfer pricing. Multinational companies devise transactions between subsidiaries, which allows Google’s Irish arm to make minuscule payments to its U.K. sister for the work done by the company’s London staff. Such deals can allow companies to shift profits to zero-tax island havens.
Completely the wrong way around. Transfer pricing means that Google cannot make miniscule payments into London. Such payments must be at least vaguely connected to market prices for such work.
And that’s what he £130 million deal was all about. HMRC said to Google, you know, we think a market price would be a bit higher than you’ve been paying Google UK. And Google shuffled its feet and went, well, OK then.
Transfer pricing doesn’t allow miniscule payments it forbids them.