By Amanda Vigar, Managing Partner, V&A
Bell Brown LLP
After years of pontificating by
politicians, it appears that the Google tax saga has reached another
significant milestone.
I suspect it
won’t be the last we hear about it as the media continues to whip up an often
inaccurate or at best misleading campaign against multinational companies that
are perceived as the spectres at the feast.
The result is that, while the technicalities are pretty meaningless to
most of us, the “lost tax” feels very real!
Politicians
need to wake up and stop being surprised that companies like Google take
advantage of the overly-complex international tax system those very politicians
have allowed and indeed often actively encouraged to develop. That may sound controversial, but tax is an
area where for decades countries have competed to be more attractive to the
multinationals they’re now turning against.
As a result,
instead of an in-depth review, they constantly stick plasters on various bits
of the tax system that pop into pubic view for one reason or another where they,
or often the media, perceive there is suddenly some unacceptable level of tax
leakage.
It has got to
the point where, if we really want to solve the perceived issues, we need to
rip up the vast majority of the 21,000 or more pages of tax law. At present all it really serves to do is line
the pockets of aggressive tax advisers looking for loop holes as if they were
involved in some playground game.
If we want a
truly level playing field for all UK businesses where there is no point going
in for tax planning schemes, then there has to be a system that makes that
exercise pointless.
But what will
it look like? Do we want a flat tax system? Or a capital asset based tax? Or a
turnover not profit tax? Well, all of
them have major pluses and matching major minuses despite what their various proponents
will argue.
By the way,
despite what certain politicos have been implying, corporation tax is
(currently) based on profits not on revenues and certainly not on revenues that
are earned by entities based outside the UK.
So, it is
quite possible that Google’s £130m settlement is absolutely the right amount of
tax at the full rate. Indeed, it feels
as if Google may have been trying to find a way to pay tax (as Starbucks did
before them) for PR purposes and may be more tax than it really needs to pay
under the law.
The biggest
difficulty in all of this is our ‘Googleworld’ is becoming borderless. If it wanted, Google could quite legally pay no
corporation tax in the UK because they don’t actually require a presence here
at all.
Everything it
does could be done out of Ireland, the US or any other country with robust internet
facilities. Before whinging too loudly,
we should be looking at the total tax paid by those evil multinationals, not
just the corporation tax! The fact is that
by being here Google is generating and paying UK VAT, UK National Insurance and
indirectly via its UK employees, UK income tax.
Surely that has to be better than Google withdrawing its UK physical
operations leaving HMRC getting little or nothing at all?
And remember
why these household names are trying to save tax – pressure from shareholders
to make a good return. So, who are these
greedy, antisocial and unsympathetic shareholders? Well, look in the mirror and you may well see
one or at least see a beneficiary of one.
It may come
as a surprise, but your work place pension scheme will be pushing those very
companies that are being criticised to enhance the value of your pension! You might well be very disappointed on
retirement if they did otherwise.
Giving the
multinationals a good kicking may make us feel righteous and generate a warm
glow, but could just mean the UK giving up jobs and your pension scheme losing
value as they get fed up with being the whipping boys of the UK media and
so-called public opinion and take their business elsewhere!
So, the moral
of the story is that you need to be careful what you ask for. You might get it and then find you have to
pay for it through your tax return!
