What doesn’t make sense about Google’s UK tax row

A few things really confuse me about the latest rumpus over Google’s UK tax row. I am as perplexed as Eric Schmidt.

In summary –

– Why is this a surprise to anyone?

– Why did Google make such a hash of explaining things?

Google UK staff sell advertising to UK customers. The customers buy from Google Ireland. Google does things this way as Ireland has low rates of corporation tax. Presumably most European Google business works this way.

Why does this mean MPs get to have another field day, hauling people in front of their committees? This is how hundreds of business work. It’s nothing new.

What really surprised me was Google’s Finance VP making such an odd response. He could have just explained how things work. Instead, his reply sounded evasive and untruthful.

The whole ‘moral’ approach from the MPs involved, especially Margaret Hodge, confuses me. If you don’t like the behaviour, change the law, or reduce corporation tax in the UK. Stop showing off and do something about it.

Sun Microsystems UK had a similar arrangement. I’m sure pretty much every large company does too. If you bought a server from Sun in the UK you would buy from a partner, who would buy from a distributor, who would place an order on Sun Switzerland. Internally, Sun would shuffle money around in the form of budgets commissions, salaries, etc. Presumably Sun chose Switzerland because of it low corporation tax.

What could MPs do? Mandate that if you want to sell something in the UK, you have to have a UK entity that people purchase from and which pays corporation tax? This is probably unworkable. Lower corporation tax? Pandering to evil mega-corps who create employment and wealth in the UK would be a terrible thing to do…

As with my comments on Amazon and Starbucks elsewhere in this blog, the other thing that confuses me is why anyone pays any corporation tax in the UK at all. Surely anyone who can would be setting up a similar model and funnel things through wherever offers the best rate at the time?

Here’s a video of Margaret Hodge showboating for the cameras.

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3 Responses to “What doesn’t make sense about Google’s UK tax row”

  1. Riz Din Says:

    Ah, so true, the MPs have it all backwards, as usual. It’s immoral for companies to pay tax unneccessarily…shareholders would not be happy! Maybe they can’t help but try to be all high and mighty, now that they’ve seen the light by way of the expenses scandal.

  2. Gary Ward Says:

    There is a 70 year old High Court ruling in the UK that says that tax avoidance, as practised by Google and others, as well as by private citizens (e.g., ISAs) is neither illegal nor IMMORAL. The ruling actually uses this word. Cameron is ignoring/flouting the law by claiming otherwise. He should not be surprised, therefore, if other UK citizens also ignore/flout the law. Gary

  3. Stuart Saul Says:

    Quite so. The words used by some (American) companies is “solicitation”. The UK staff “solicite” purchases. The actual “sale”/”invoicing” takes place elsewhere. It’s normal, its legal, it avoids tax, it’s wide spread. I too am confused by Google’s bumbling and the British MPs’ grandstanding.

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