Is Google really as 'immoral' as MPs suggest?
13th Nov 2012 | 11:30
Why tech firms' taxes matter to everyone
This week, we saw Google and Amazon hauled over the coals by a Parliamentary committee that called Amazon "evasive" and Google "immoral". Their crime? Tax avoidance on a truly epic scale.
They're not the only firms who do it - Starbucks was hauled in front of the same committee, and of course many of the newspapers reporting the firms' tax practices have similarly labyrinthine corporate structures to avoid tax - but they're among the highest profile offenders.
Does it matter? TechRadar commenters lew247 and mrochester say no. "It's not illegal so what's the big deal?" says lew247, while mrochester reckons that everyone "should stop whining that people are operating within the laws set out."
Meanwhile daddacool points out that according to Her Majesty's Revenue and Customs, about half of the "tax gap" is due to small and medium-sized enterprises, not massive multinationals.
So do the tech firms' taxes matter?
Of course they do.
Perfectly legal - but MPs say it's immoral
The argument against Google, Amazon et al is simple enough: if the law lets them avoid tax on such a huge scale, then the law is an ass that must be changed.
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Tax-avoiding small businesses are a problem too, but they're a different kind of problem - a problem that generally involves a large number of businesses but relatively small amounts. The tax gap figures apply to all taxes, not just corporation tax, and they include late payments too (of which around 90% is eventually paid).
A good proportion of small businesses' tax troubles are due to mistakes, not malice, and where there is malice HMRC is already cracking down on it: for example, it's currently running sting operations in particularly fraud-prone sectors such as restaurants and other cash-based businesses.
Amazon and Google (and Apple, and Facebook, and other firms with similar arrangements) are playing a completely different game.
The allegation is that they have deliberately created artificial structures to avoid enormous sums of tax, so for example in Google's case the fiction is that its UK-based engineers don't actually do anything because the important stuff all happens in America.
That's nonsense, of course - Google's currently advertising for UK engineers to work on "critical production applications and infrastructure" including designing and developing systems for "Google Search, Gmail, YouTube, Maps, Voice, AppEngine, and more". Describing its London operation, Google says "our engineers develop products used by millions" - and yet Google's Matt Brittin told MPs this week that "People in the UK are not doing innovation... all of the engineering work is done in California." Oops!
The result is that Facebook reportedly paid £238,000 on sales of £170 million last year, while Amazon apparently paid no corporation tax on sales of £3.3 billion. Google's tax bill sounds higher - £6 million on revenues of £395 million - but that's still just 1.5%.
Why tech firms' tax matters
Large-scale tax avoidance matters for three reasons. The first is that the government's determination to slash the deficit without significantly increasing taxation means that if big firms don't pay, others get squeezed - so the axe falls on public spending, and on benefits for the vulnerable, and on the NHS.
The second reason is that it's unfair on other firms, who aren't big enough to afford or employ labyrinthine financial arrangements. It's hard enough for retailers to compete with the likes of Amazon, and it's harder still if they're paying ten times the tax that Amazon pays. That's not the only reason high street names such as Comet go bust, throwing hundreds of people on the dole, but it hardly helps.
The third reason is that the companies do operate here. They lobby our politicians and they benefit from the infrastructure and services that taxes pay for, from schools to roads to fire engines to policemen to hospitals. As someone put it on Twitter yesterday (sorry, I've lost the link), the acid test of where a company exists is where its employees go when they're sick. When Google's UK engineers need medical help, they don't attend A&E in Bermuda.