back to article Schmidt 'very proud' of Google's tiny tax bill: 'It's called capitalism'

Google executive chairman Eric Schmidt has dismissed criticism over how little corporation tax his company pays, saying it's just capitalism. Schmidt is "very proud" of the corporate structure Google set up to divert profits made in European countries, such as the UK, to its firms in the low-tax havens of Ireland and The …

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          1. sugerbear

            Re: Talk about stating the obvious... @Def

            Ok I will bit and call B@llsh!t. Every single one of the IT contractors I know set up as a contractor for the sole reason that they receive more income and pay less tax. Deducting travelling/accomodation costs associated with working somewhere and being able to employ your non-working wife was also a great wheeze unavailable to PAYE employees.

            All well and good until the IR realised that more and more people were avoiding income tax by playing "pretend" contractor and were no different to a normal employee that changed jobs every 6/12/24 months.

            90% of IT contractors are not really contractors. They are just PAYE employees that change jobs more frequently. Businesses like them because they pay less tax and are easier to hire/fire.

            1. Sir Runcible Spoon

              Re: Talk about stating the obvious... @SugarBear

              "are easier to hire/fire"

              You sent that little tidbit off a bit lightly if you ask me. There are advantages to being a contractor (otherwise people wouldn't do it) but it isn't all tax avoidance and expenses you know.

              Personally I like to take a month off between contracts, try that in a full-time job and see how popular you are. I became a contractor to avoid office politics - everyone has their own reasons.

        1. Cynical Observer

          Re: Talk about stating the obvious...

          @Def.

          Is that really 100% accurate.

          Normal salaried employees are allowed claim for expenses related to their employment - e.g. mileage up to the HMRC approved levels; professional fees; subscriptions.

          All of these lower their tax liabilities.

          On that basis you could argue that they are being taxed on profits not revenue.

          1. Lamont Cranston

            @ Cynical Observer

            As a salaried employee (of the state), I am allowed to claim expenses. However, when I spend that money (e.g. on petrol, car maintenance, train tickets), I am paying tax (VAT, fuel duty). At the end of the year, HMRC look at how much I've claimed, then reduce my personal allowance, ensuring that I pay tax on my expenses again. I'm certainly not making a profit out of this.

        2. P. Lee

          Re: Talk about stating the obvious...

          Corporate structure and paying tax on profit rather than revenue is a recognition that corporates have high expenses associated with generating revenue.

          IT Contractors can keep their costs low, but if they want to keep current with training, it will cost them quite a bit. Any test kit they buy will generally be quite expensive too.

        3. Anonymous Coward
          Anonymous Coward

          Re: Talk about stating the obvious...

          "Which nicely outlines the real problem. People don't like paying taxes".

          Not really. They don't like paying taxes based on a fraction of their revenue. Tax should obviously be based on profit, as that is the income a person (or a corporation) gets.

          If I buy 1000 apples for 50p each and sell them fro 60p each, I have paid £500 and earned £600. My gross profit is £100 - before paying for any business expenses I may have (such as a license to sell apples). It's obviously unfair to tax me on the whole £600. What if, for instance, the bottom fell out of the apple market (no jokes please) and I could only get 40p each when I sold them? I would have lost £100 in return for working all day, and I don't think anyone would like to see me paying tax based on the money that passed through my hands (but didn't stick).

          1. Yet Another Anonymous coward Silver badge

            Re: Talk about stating the obvious...

            If you buy apples for 50p, sell them for 60p but claim that you have to pay 11p to your Bermuda based parent company for the IP rights - then claim a grant to make up for your loss.

            1. Anonymous Coward
              Anonymous Coward

              Re: Talk about stating the obvious...

              "If you buy apples for 50p, sell them for 60p but claim that you have to pay 11p to your Bermuda based parent company for the IP rights - then claim a grant to make up for your loss."

              And who lays down the laws that allow companies to set values for IP rights? Government.

              And who offers companies grants? Government.

              If our lords and masters would do a little more thinking (assuming some of them, at least, are even capable of that) and less knee-jerk exhibitionistic reacting, perhaps we would have fewer and more consistent laws.

        4. secret goldfish

          It's all relative

          You're not considering that for a Normal salaried employee their revenue IS essentially their profit!

          Did they have to pay for their own office rent, their own equipment, were they 'out of pocket' while awaiting their clients/customers to actually pay them? If so, then they can claim these costs back in their tax return and receive a refund/deduction much like a sole trader.

          Don't be so quick to assume that limited companies or sole traders have somehow got some amazingly better deal than salaried employees, I've been both a salaried employee and a sole trader (approx. 10 years each) and both have their pro's and con's, it is always easy to simply see the grass as being greener on the other side of the fence.

          The length of time I've had to wait to be paid by clients or the dilemma of simply BEING paid by them, along with 100 other sketchy aspects I could bore you with regarding being self employed are enough to make me constantly question why I bother working for myself and don't simply go back to a guaranteed weekly wage. At the end of the day though, not being reliant on one potential asshole boss, being self sustaining and in more control of my own life/choices are the things that end up being far more important to me than a simple perceived "tax advantage" from someone who I consider 'lucky' to have a guaranteed salary.

          If that still sounds like such an advantage to you then by all means feel free to become self employed yourself just get used to living with a lot less certainty and be ready to live frugally when some fucker decides they don't want to pay you 'on time' or 'at all' for work you've already done for them. If you want to take an even bigger risk then become a Limited company, risk employing some people, risk paying big money for a big office and you'll be rewarded by not being held personally financially liable when the whole thing goes 'tits up' and you walk away causing real personal financial damage to sole traders such as myself and your wage earning employees.

          Like I said there are pro's and con's to all sides

  1. dizzee
    Meh

    Governments aren't serious about combatting tax avoidance

    Isn't it interesting how governments have managed to shift the argument from "why do we need to pay so much tax" to "why aren't these corporations paying enough taxes". If the government was serious about this issue they would simplify the tax code by removing all the exemptions, tax breaks, tax credits, etc. A simple tax system based on revenue would get rid of all this nonsense. The US Supreme court ruled that corporations are people - If that's the case they should be taxed like people i.e. a tax on Gross income - simples.

    1. Richard Wharram

      Re: Governments aren't serious about combatting tax avoidance

      A little bit unfair on low-margin, high-volume businesses that idea and unfair on retailers in general.

      1. Anonymous Coward
        Anonymous Coward

        Re: Governments aren't serious about combatting tax avoidance

        Quote: A little bit unfair on low-margin, high-volume businesses that idea and unfair on retailers in general.

        Half of those exist primarily due to tax avoidance, "supply chain efficiency" and other accounting aberrations induced by business consultant whalesong.

        Presently we have supply chains that are 20+ (and that is an optimistic assumption) entities long before anything hits retail. Some of these (like Starbucks selling coffee at "interesting" prices from one country branch to another) are there just because of taxation and accounting aberrations. _NOBODY_ (except tax consultants) will even notice if they go away.

        In any case, I have been flamed for it before on el reg, I will get flamed again. The way things are going we will be looking at Soviet Block taxation within the next decade. The soviet block did not have VAT - they had turnover tax which was taxed at _EVERY_ step and was not refundable like VAT. Turnover tax does wonders in terms of eliminating unnecessary middlemen. You force economical entities to own the whole chain - production, distribution and retail. It also does wonders in terms of creation of spare unused capacity across the economy and dropping the overall economy efficiency. It was (by the admission of all economists) one of the things which killed the soviet block.

        The truth is somewhere in between. VAT in a non-uniform tax regime is evil as it allows creation of carousel structures to do tax avoidance at tax evasion levels. Turnover tax in its pure form is similarly evil as it forces the establishment of enormous vertical mine-to-the-consumer table monstrosities. The truth is somewhere in between.

        IMHO - introduce 0.1% turnover tax and be done with it. It is sufficient to kill unnecessary "fake" transactions and shorten the enormously long (and parasitic) distribution chains to something moderately sane.

    2. Anonymous Coward
      Anonymous Coward

      Re: Governments aren't serious about combatting tax avoidance

      You can't tax on revenue alone, if my business earned 10k one month, but it cost me 9k in development costs, and I then get taxed 20% of the 10k, I'm now out of pocket by 1k. Not very good business.

      1. David Webb

        Re: Governments aren't serious about combatting tax avoidance

        It is tricky isn't it? We have companies which have huge revenues but still make a loss, so if we were to tax revenue and not profit a company which made a loss of £1b that year on revenue of £38b would find themselves in a not very nice tax position. The issue is with companies that make a profit of £1b off revenue of £38b yet use creative accounting to set that profit as a loss negating their tax on profits.

        Of course, this does (in the long run) hurt the tax dodgers, they end up with huge stockpiles of cash which they can't bring into the US or the UK without that stockpile of cash being smashed by the taxman. You might think it's nice to have £100b in an off-shore bank account, but if you need that money in the US then you can't really access it, so you end up spending it on buying back stock or buying other companies, anything to use the money up. Buying other companies could introduce two problems, the first is that it's a loss-making company so you're throwing away billions on the purchase and then hundreds of millions on the annual loss that you incur (although that'll lower your tax burden...) the other problem is that the company is a profit making company so you end up shifting the profits over-seas again which puts you back where you start.

        1. Field Marshal Von Krakenfart
          Devil

          Re: Governments aren't serious about combatting tax avoidance

          Of course, this does (in the long run) hurt the tax dodgers, they end up with huge stockpiles of cash which they can't bring into the US or the UK without that stockpile of cash being smashed by the taxman. You might think it's nice to have £100b in an off-shore bank account

          This is one of the oldest banking scams ever, the back to back loan,

          • deposit your money in an offshore tax haven, get deposit interest on money but do not pay income/corporation tax on deposit income.
          • Get loan from same bank but in your own jurisdiction, usually at a low rate because loan is covered by deposits, claim interest relief on interest paid.

          The most notorious case I can think of is the Guinness Mahon/Ansbacher case in Ireland, the scheme was used by the rich and famous to avoid tax. Worse politicians, including the then Irish PM Charles Haughey, were using the scheme to launder corrupt "donations". As a result of the investigations into this case two corrupt politicians were jailed for tax avoidance. The investigations cost circa €20 Million, however circa €35 Million was recovered in unpaid taxes and fines. That's an awful lot of money on deposit.

          There was never any political will to close down these schemes and tax loopholes, why would there be when politicians were availing of the same schemes and tax loopholes. Always ask; Who really benefits from these schemes. The answer is not always obvious.

      2. Anonymous Coward
        Anonymous Coward

        Re: Governments aren't serious about combatting tax avoidance

        Hire an accountant, even if only for long enough to learn how to set pricing for your services to cover your tax liability for said services.

      3. jxp

        Re: Governments aren't serious about combatting tax avoidance

        Presumably you would need to increase your margins and the tax rate would be less.

        20% tax on profits would probably be equivalent to 2% tax on earnings.

        1. DavCrav

          Re: Governments aren't serious about combatting tax avoidance

          "Presumably you would need to increase your margins and the tax rate would be less.

          20% tax on profits would probably be equivalent to 2% tax on earnings."

          Exactly this. From an economics point of view, companies won't invest without a suitable rate of return anyway, so their profit margin should be at least (say) 5%. A 1% or 2% revenue tax would not eat up profits any more, in fact less, than a 20% profit tax. Furthermore, it doesn't affect investment at all like people pretend that profit taxes do, because this is a tax on *all* revenue, so opportunity cost is also lowered by the tax amount.

          It really does work, and is easier to collect, more difficult to avoid, etc.

  2. TheOldFellow
    Thumb Up

    Good ol' Google

    I like free stuff. I'm quite happy if someone else pays for it. That our lords and masters are not clever enough to write tax laws that don't have legal loopholes is quite OK with me. All strength to your arm Google (and thanks for the free search, free docs, free email, free calendar, etc.,etc..)

    1. graeme leggett Silver badge

      Re: Good ol' Google

      The rules exist for good purpose and from the point of view of national authorities the intention is to not penalise legitimate business practices.

      Unfortunately, because multinationals operate across several national areas they are able to exploit the differences between how each nation decides its tax. With added complications due to those tiny nations where the favourable tax and or banking systems is their prime "export".

      You may be being ironic about google providing free stuff. I can think of a couple of (possibly contradictory) proverbs which might apply - "never look a gift horse in the mouth" and "beware of Greeks bearing gifts"

      1. Ben Holmes
        Joke

        Re: Good ol' Google

        The Greeks can't afford any gifts anyway. The German's won't give them any pocket money.

    2. Naughtyhorse

      Re: Good ol' Google

      lol

      free

      eejit

    3. Ken Hagan Gold badge
      Thumb Up

      Re: Good ol' Google

      Presumably you don't need healthcare, defence, transport infrastructure. Or do "Good ol' Google" provide that as well where you live? Equally, presumably you wouldn't mind your employer (or pension provider) using all legal means to avoid paying you for whatever it is you do (or did) for a living.

      1. dizzee

        Re: Good ol' Google

        That's what the OP's taxes are for.

    4. Anonymous Coward
      FAIL

      Re: Good ol' Google

      Free roads, free schools, free swimming pools, free bin collections, free emergency services, free council workers, free parks, free town centres....

      Oh I'm sorry they have to be paid via TAXES you fucking moron.

      Less revenue coming in = less money for above (and a lot, lot more)

      1. AceRimmer

        Re: Good ol' Google

        as far as I know Google doesn't drive, need education, swim, go for long walks in the park or go shopping

        Bin collections and emergency services are covered by business rates which Google will be paying already

        1. DavCrav

          Re: Good ol' Google

          "Google doesn't drive"

          And those Google maps cars flew? I want a flying car too!

        2. Lamont Cranston
          Facepalm

          Re: Good ol' Google

          "Google doesn't drive [etc.]" I hope they don't employ anybody. Fuck society, eh?

      2. Anonymous Coward
        Anonymous Coward

        Re: Good ol' Google

        And you, you fucking moron, have no idea either. Why should Google nominally pay for all those things that you and everyone else enjoys ? Google don't swim, don't use schools, or anything; YOU use those things, you pay for it.

        The only reason you advocate for Google to be levied the tax is that you are so fucking stupid that you think that "Google" pays the tax and by doing so that conceals the tax from who actually, literally, pays. And that's you and yours. But as such an advocate I assume that you don't actually pay net tax but expect everyone else to fund your indulgences.

        This whole tax issue is rife with such self deluding idiot thinking.

  3. JeevesMkII

    Capitalism, aye?

    Time for a one off douchebag tax, to be levied on companies whose CEOs are make smug statements about how proud they are of their tax structures. A couple of billion ought to cut it, don't you think?

    Get on it, Osborne.

    1. Phil O'Sophical Silver badge
      Coat

      Re: Capitalism, aye?

      > one off douchebag tax

      The problem with that idea is that governments would end up paying out more than they take in.

    2. Dr Dan Holdsworth
      FAIL

      Re: Capitalism, aye?

      Of all the most gibberingly idiotic notions ever mooted regarding tax, this is the second worst. The worst of all is a retrospective windfall tax.

      Both of these notions teach multinationals that the nation which levies them cannot be trusted to play by the rules that it imposes. The retrospective tax on oil revenues is the reason why oil companies aren't bothering to try to reach the tight oil reserves in the North Sea's British waters; if they do find a miraculous way to get this oil out, then the UK government has form for dreaming up retrospective taxes to glom onto profits. The same is true in Russia, which is why capitalism and foreign investment there is so lacking; there's plenty of hard-to-extract minerals in Russia, but there're also rapacious government-sanctioned thieves and contract-breakers.

      Both of these notions are theft, pure and simple. Thievery of this nature by governments is a very good way to teach multinationals to never show a profit in these juresdictions and to exploit every single loophole going to try to show a loss. Granted, the government gets a smallish windfall lump sum and kudos from the hard of thinking for a while, but long-term such actions scare off investors and land the hapless politicians even deeper in the smelly than they were initially.

      1. JeevesMkII
        Childcatcher

        Re: Capitalism, aye?

        No sense of humour? Long-winded bloviating? Describing governments and taxation as theft? The randroid meter is going off the scale! Clear the area!

  4. AceRimmer
    Childcatcher

    New Tax Rules

    They just need to tax transactions between a company and it's overseas counterparts (and other linked companies) when dealing in intangible assets (trademarks, logo's etc...)

    For physical items, any transactions above the accepted market value should be taxed. e.g. if coffee is generally £1 per kilo and Starbucks NL was selling coffee to Starbucks UK at £3 per kilo then tax would be due on the £2 difference.

    1. gazzton
      Unhappy

      Re: New Tax Rules

      I like apostrophes - seems you do too. How about using them properly though? Two apostrophes, both incorrectly used. Better luck next time.

      1. AceRimmer
        Happy

        Re: New Tax Rules

        Their, they're; yule be home soon mr Grammar Nazi

      2. Anonymous Coward
        FAIL

        Re: New Tax Rules

        How about substituting some of your full stops for commas and dropping an incorrectly used hyphen, making your point more readable?

    2. csmager

      Re: New Tax Rules

      Hate to break it to you - these rules already exist. Look into transfer pricing.

      1. AceRimmer

        Re: New Tax Rules

        Subtly different and wide open to companies setting whatever price they like for "intellectual rights" hence the current state of affairs.

        Transfer pricing is supposed to be governed by the arms length pricing principle but that's generally ignored

      2. Field Marshal Von Krakenfart
        Devil

        Re: New Tax Rules

        Hate to break it to you - these rules already exist. Look into transfer pricing.

        And what makes you think the rules for transfer pricing are fit for purpose. It's the transfer pricing rules/laws that are broken. See the starbukes example above.

        In 2011 MickeySoft sold the IP and the right to sell office to offshore subsidiaries for $4 billion but those subsidiaries then sell office product for $12 billion thereby shifting $8 billion in income offshore.

  5. g e
    Megaphone

    What are people whining about?

    If it's legal then change the law.

    You may as well whine because people stick to the speed limit or don't kill people or cheekily refrain from robbing banks and call that immoral.

    If it's law then it's law and if it's followed and people think it's wrong then it's the law that's wrong, not the people doggedly adhering to it. I wish people would whine to this extent about something useful like assisted suicide laws or something.

    MP's calling corps immoral. that's pretty fkn rich, too.

    If you got this far then thank you for reading ;o)

    1. Anonymous Coward
      Anonymous Coward

      Re: What are people whining about?

      To change the law requires international agreement, so it's not going to happen.

      1. AceRimmer

        Re: What are people whining about?

        Changing the law internationally will also mean other countries losing out on tax they are already getting. I don't think that any country would want to change their tax law to help another country get more tax

        1. g e

          Re: What are people whining about?

          Yeah but if UK cut corp tax by a factor of four I reckon they'd get more than 4x the businesses coming along to make use of it ;o)

          It doesn't have to be an _increase_

      2. Anonymous Coward
        Anonymous Coward

        Re: What are people whining about?

        "To change the law requires international agreement, so it's not going to happen".

        Wheeee! Extradition has apparently been abolished. And no "Coaltion of the Willing" ever invaded some perfectly harmless country and bombed it into the Stone Age. There is no European Community, and no such currency as the Euro.

        I think what you meant is that "To change the law in such a way as to cost rich people serious money requires honest politicians, so it's not going to happen".

    2. Oninoshiko
      FAIL

      Re: "Immorality of tax dodgers"

      Oh it gets better, lets say (for the sake of argument) that other then the laws they pass, MPs are perfectly moral (I'm sure there is some bizzaro-morality where it works).

      So MP says google is immoral for following the law.

      Therefore the law google is following must be immoral.

      Laws are made by MPs

      QED: MPs are (by admission) immoral, for making immoral laws.

  6. banjomike
    WTF?

    Don’t Be Evil ?

    Surely nobody believes that anymore?

    1. splodge

      Re: Don’t Be Evil ?

      Everyone knows paying tax is evil

  7. BCS

    The answer is for every country to have the same corporate taxation figures. Of course, that will never happen. So perhaps the UK could apply a "Corporate VAT" e.g. 5% CV on every purchase a company makes. Thus all of this rubbish about "Startbucks UK buying its coffee from Starbucks Elsewhere and thus not making any profit" would be removed. Google and Amazon would likewise be picked up. And as it would apply to any business trade done by a company operating in the UK (irrespective of where it's based) all companies get hit the same and no one gains an advantage / disadvantage from it.

    Or they could just say "companies can only claim back 15% VAT rather than the full 20%".

  8. Anonymous Coward
    Megaphone

    Massive lack of morality

    ... But what else should Google do? They are operating according to the laws of the lands they are in and that's it. Capitalism doesn't have a conscience else nobody would be fired just to give the CEO a better Christmas bonus.

    This is an interesting admission here though; Gogle is saying that what it does, it does because it makes sense in a capitalist framework. Does that mean then that the causes it supports are done so purely for the capitalistic benefit of the company? Of course. Google's motto is "don't be evil". What Google's motto isn't is "Be Good". So, supporting social groups that can pay show their gratitude through traffic and use of Google services is great while helping governments pay the bills which support services and support for the poor is not great.

    That's why Google isn't going to pay this, but Starbucks now is. Nobody thinks that Starbucks has had a change of heart do they? They're losing out because of the bad press which is why they have tried to do what they have. Not paying the taxes in the UK was immoral, but the paying of the money they have promised is no more moral, they're doiing it because it makes business sense, not because it's the right thing to do.

    Google is practically unboycottable, so they can say "up yours" to whoever complains.

    Essentially, what I'm trying to say in these disjointed paragraphs is that morality is subject to capitalism in our brave new world and it counts for nothing. If there's no money in it, then there's no point to it.

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