Rather than being outraged at Google not paying tax in the UK, we should applaud its pro-Europe approach, argues Jason Hesse.
Tax dodgers. Evaders. Thieves! The tabloids had a field day last weekend as it emerged that Britain’s five biggest internet firms avoided paying more than half a billion pounds in taxes in 2010. Together, Apple, Amazon, eBay, Facebook and Google are said to have paid just £19 million of taxes on UK revenues of £12.2 billion.
The Financial Mail calculated that, based on their global profit margins for the year, that would mean profits for the five from sales to British customers would have amounted to almost £2.5 billion. At 2010′s corporation tax rate of 28 per cent, this would have seen them pay £685 million. Instead, subsidiaries established by the five in Britain paid just £19 million to the tax man in 2010, or 0.8 per cent.
The Mail’s Ruth Sutherland wrote: “Just like the American robber barons of the Edwardian era – Carnegie, Rockefeller and Vanderbilt – they have embarked on a land-grab; not for steel, oil or real estate, but for intellectual and cultural property. They are ruthless would-be monopolists – and avoidance of tax is part and parcel of the plunder.”
What utter rubbish. We should be congratulating these companies for taking full advantage of EU rules and maximising their shareholders’ profits as far as possible. UK companies have a lot to learn from them.
The trick to becoming a multi-billion pound internet giant isn’t to voluntarily pay 28 per cent tax (24 per cent today), it’s to squeeze your profits as much as possible. The strategies used by the companies are perfectly legal. They are using the EU to its fullest.
The idea behind the Single European Market is to make it easier to do business across Europe, using one legal establishment. This cuts down on bureaucracy and helps companies make more money. It’s no different to your Silicon Roundabout-based start-up selling its products in Poland without having to set up a local company.
Amazon and eBay sell everything to all European countries via one company in Luxembourg, where the corporation tax rate is half that of the UK’s. Apple, Google and Facebook sell everything through their Irish companies, where corporation tax is just 12.5 per cent. These techniques are occasionally referred to as a “Double Irish” or a “Dutch Sandwich”,where sales are funnelled through the Netherlands and Bermuda.
“But why should companies sell tens of billions of pounds of goods in the UK and not pay their fair share of tax,” I hear you scream. My answer? They do.
The reason Google et al base themselves in Luxembourg and Ireland is because these countries offer a more competitive tax regime than the UK. Why would a private company elect to base itself in a country with a 24 per cent rate of corporation tax when it has perfectly-legal option not to do so?
The responsibility for the situation lies with the Treasury. This isn’t about closing tax loopholes or clamping down on evaders, it’s about addressing the fundamental issue that the UK really isn’t that competitive for businesses.
Thankfully, the Coalition is trying to change this. George Osborne hasn’t been cutting the rate of corporation tax for fun: he wants to make the UK more attractive for firms to locate their headquarters here.
Britain needs to avoid antagonising profitable companies. These companies invest millions in the UK economy each year. They employ thousands of people who themselves pay exhorbitant taxes that fund a runaway public sector that provides shoddy, inefficient services, the surveillance state and a vast array of meaningless and socially destructive quangos.
Wealth trickles down. That’s why it’s alarming that so many wealth creators are leaving Britain. The corporate tax debate needs to move away from “clamping down” on so-called tax dodgers, and focus on how to make the UK a more inviting place to do business.