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?