The 25 percent Google Tax, aimed at clamping down on multinationals that avoid paying UK tax by offshoring profits, was announced by the British Government last year and is due to be introduced in April 2015. However, the Institute of Directors, which represents directors and shareholders of Britain’s big businesses, says the proposed tax is a pre-election gimmick.
Google, Starbucks and Amazon were all summoned to address the UK Public Accounts Committee of MPs last year over their tax arrangements. The committee found that Amazon had a reported turnover of £207 million for 2011 for its UK subsidiary (Amazon.co.uk), on which it has shown a tax expense of only £1.8 million.
People care about tax avoidance but not so much that they stop using Google or Amazon. That's how much they *really* care about it.
— Dan Brusca (@danbrusca) February 16, 2015
The committee also heard evidence that the vast majority of Google's non-USA sales are billed in Ireland. Google makes money from business-to-business advertising, which can be targeted to the UK website and to UK Google users. In the UK, Google Ltd recorded revenues of £396 million in 2011, from Google Ireland, but paid a corporate tax of only £6 million.
Only when it comes to paying tax>RT @TheEconomist: Starbucks in Britain: A loss-making machine http://t.co/3KfZ675cYZ http://t.co/QGJX5kWF50
— Acleron (@Acleron1) February 15, 2015
Starbucks told the committee that it has made a loss for 14 of the 15 years it has been operating in the UK, but in 2006 it made a small profit. The committee said:
“We found it difficult to believe that a commercial company with a 31% market share by turnover, with a responsibility to its shareholders and investors to make a decent return, was trading with apparent losses for nearly every year of its operation in the UK”.
Directors Blame Media and MPs
However, according to Stephen Herring, Head of Taxation at the Institute of Directors, the proposed Diverted Profits Tax – the so-called Google Tax – is a short-term political measure. He said the perceived political imperative of being seen to do something about the offshore tax arrangements will mean that the proposed tax is being brought in too fast and without adequate consultation.
US multinationals attack UK’s Google tax http://t.co/C9h8amSehD
— Financial Times (@FT) February 9, 2015
“There is no doubt that there has been increasing public concern about tax avoidance expressed in the media and, most vocally, if not always accurately and fairly, by the House of Commons Public Accounts Committee.”
“However, whilst we fully agree that global multinational companies ought not to benefit from a more favourable overall tax treatment than that obtained by purely domestic companies, we cannot support the enactment of the Diverted Profits Tax in its current form without adequate consultation with business,” said Herring.
The proposed Google Tax still might not make it onto the statute books by April, as many companies – represented by the IOD – will put pressure on the Conservative Party to water-down its proposals.
