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Google “can make money without doing evil” (as it evades $2bn in taxes)

Posted By TelecomTV One , 12 December 2012 | 3 Comments | (2)
Tags: Google corporate tax Finance

As the net closes around the multinationals that avoid paying corporation taxes, Google is accused of saving $2bn by routing income through a “Double Irish Dutch Sandwich”, paying tax of just 3.2 per cent on its overseas profits. Guy Daniels reports.

Three questions. One; where do you stand on the subject of tax avoidance? We at TelecomTV believe that individuals and corporations have a duty to pay their fair share of tax. By fair, we mean whatever respective governments rule to be the legal requirement (after all, in most countries, we voted the politicians in to office). By all means try and mitigate the amount of tax you have to pay, using whatever accepted mechanisms are available. But avoidance? That just means somebody else (with far less access to expensive and clever advisors) has to contribute to your share as well.

 

Second question: how do you define evil? The Oxford English Dictionary defines evil as “profoundly immoral and wicked” or “something which is harmful or undesirable”. In my book, that means tax avoidance is evil, simple as that.

 

Third and final question: Is Google evil? If you believe that avoiding tax is wrong (especially through aggressive and mind-boggling complicated avoidance schemes) and if you believe that depriving society of tax revenues is wrong (and so reducing the level of available State support for the most needy) and could be described as an evil act, then surely you must conclude that Google is acting in an evil manner.

 

An investigative report by Bloomberg has discovered that Google avoided about $2 billion in worldwide income taxes in 2011 by shifting $9.8 billion in revenues into a Bermuda shell company – almost double its total from three years ago. The information was disclosed in a November filing by a Google subsidiary in the Netherlands, which was discovered by reporters from Bloomberg.

 

It appears that Google legally routed profits from overseas subsidiaries into Bermuda, which doesn’t have a corporate income tax, thereby enabling it to cut its overall tax rate almost in half. Bloomberg says the amount moved to Bermuda is equivalent to about 80 per cent of Google’s total pretax profit in 2011.

 

Tax evasion and avoidance costs the European Union a staggering €1 trillion a year. That’s worth dwelling on for a moment longer…. €1 trillion. No wonder politicians are now acting to try and prevent this financial loss and branding such acts as scandalous and immoral.

 

Bloomberg has a good quote from a UK-based tax accountant, which pretty much sums up the feeling in Europe at the moment. According to Richard Murphy of Tax Research:

 

“The tax strategy of Google and other multinationals is a deep embarrassment to governments around Europe. The political awareness now being created in the UK, and to a lesser degree elsewhere in Europe, is: It’s us or them. People understand that if Google doesn’t pay, somebody else has to pay or services get cut.”

 

Just look what happened to Starbucks. When the public discovered the US coffee giant paid zero taxes in the UK (yes, absolutely nothing at all), it started to boycott the chain.

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As a result, Starbucks was forced to “volunteer” to pay taxes…

 

The UK is Google’s second-biggest market, responsible for about 11 per cent of its sales. Of the $4 billion it turned over last year, it paid UK corporation tax of less than $10 million. Bloomberg says Google avoids tax by using an Irish subsidiary to collects revenues from ads sold in the UK, which then pays royalties to another Irish subsidiary whose legal residence is in Bermuda. Payments are then sent to yet another subsidiary in the Netherlands (with no employees, note) before finally reaching the tax haven of Bermuda.

 

Sounds pretty ‘evil’ to me. And if so, then that’s against the internet company’s guiding principles. Stated clearly on the “Ten Things We Know to be True” page on Google’s website is the following:

 

“You can make money without doing evil.”

 

I’m sorry, Google, but I don’t see how avoiding tax is anything but evil. Of course you – and all companies – have a duty to shareholders to maximise profits. But there are rules. Some of these are merely ethical, whilst some are legal. There is no indication or suggestion that Google has acted illegally, but there is every suggestion that it has acted unethically.

 

And who said you can’t have ‘ethical companies’? Of course you can. I don’t buy the ‘extreme capitalist’ viewpoint that corporations will only act in self-interest and never “do the right thing” or pay their fair share. If their customers start to boycott their services, then they’ll change. It happened with the sudden emergence of all the so-called ‘corporate responsibility’ positions that all featured heavily in annual reports. I don’t see why it can’t happen with fair tax positions.

 

Other ICT companies reported in the media to be using this complicated tax evasion (sorry lawyers, of course I mean ‘mitigation’…) structure include Apple, Facebook, Microsoft and Oracle. Unfortunately, Google – and all the others, who no doubt will soon be named and shamed – will continue their sharp practices until they are forced to make a change. If governments can’t do that through the legal process, then it’s up to customers to vote with their feet and walk away from Google services. As Richard Murphy said, consumers are beginning to get the message that it’s “us or them”, and we’re already being squeezed by the many austerity measures that are in effect to drag us out of recession.

 

Come on Google, time to step up to the plate and show some leadership. Pay your fair share. And then the rest of the ICT industry can do likewise. Or else remove that fatuous and out-dated “don’t do evil” slogan from your website once and for all.

 

Further reading: The Pearse Trust blog has a detailed explanation of the so-called “Double Irish Dutch Sandwich” tax scheme. Please don’t try and implement it.

 

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(1) 12 December 2012 15:28:12 by Roy Mira

According to your old Oxford dictionary, evil is actually what you’ve spewed out in this article. Consumed as you are by envy and hatred for the class of producers, your obsession with the 19th century Manifesto continues to blind you on how economic growth is obtained by societies, and to narrow down your vision range to the simple minded, single tone redistribution theme. Grow up to understand the economic realities of today and the challenges of optimizing ever more complex products as well as corporate performance to continue to sustain the classes of consumers, as your media class. And if as you say, Google didn’t do anything illegal, then you’ve lost a good opportunity to remain silent, didn’t you?


(2) 13 December 2012 06:26:30 by Peter Ghys

Well done TelecomTV for standing up for what is right. I'm appalled at the greed of the big companies - and their apologists like Mr Mira above. I'm not saying that all should be shared equally or anything too dramatic - but they have to pay their fair share - or we end up paying it for them.


(3) 13 December 2012 10:48:05 by TelecomTV One

Steady on there Mr. Mira. You'll burst a blood vessel. And I'd steer clear of today's lead story if I were you, it could bring on apoplexy. My colleague, Guy Daniels, who wrote yesterday's main piece to which you have taken such grave exception, wasn't "spewing out evil" but offering an informed and considered view of a contentious subject that is exercising politicians around the world. And to what "19th Century" manifesto do you refer? If it's the Communist one, then it's our turn to take exception. No commies here mate, we've looked under the beds. Furthermore, nowhere in the article is there a mention of "redistribution" it is a story about fairness and ethics and morality. It is also an example of applied free speech in action. You have free speech over there in the US. don't you Mr. Mira? Martyn Warwick. Editor-in-Chief