Five reasons why the Google tax deal is imploding

When Cameron promised 'Google Government', is this what he meant?

Listicle Today, the UK's tax deal with Google – or rather, corporate parent Alphabet Inc – looks worse than ever. Here's why.

1. Google avoids Osborne's 'Google Tax'

Remember the Diverted Profits Tax? Announced in 2014, the DPT was designed to “deter and counteract” companies that “seek to avoid creating a UK permanent establishment” for purposes of avoiding UK corporation tax, and exploit tax arbitrage. The DPT tax rate is 25 per cent - and was deliberately set higher than corporation tax. Have a read (pdf).

It was instantly dubbed the “Google Tax” as multinationals that book profits through another EU member state, and claim to have no UK presence, were clearly its target. Google argues it has “no fixed base” in the UK, despite employing thousands of staffers in London alone.

However Google will now evade the DPT as part of the backroom deal.

2. Wait. You paid… how much?

Google’s deal covers back taxes over several years, averaging just £13m to the UK for the period covered. Is it a reasonable reflection of its UK profits?

Charles Arthur has a good back-of-the-envelope calculation here. It’s a useful reminder of how big Google is, with an estimated £40bn in revenue and £11.5bn in profits since Q4 2005.

Assuming the same rate as similar advertising businesses (eg, ITV) a 21 per cent would yield the Exchequer £1.49bn. The total amount paid by Google, when the “sweetheart deal” is added to corporation tax already paid, is £200m.

Note: Google is expected to have $100bn in cash on hand by the end of 2016.

3. France is fighting Google harder - and will get more out of them

Wait, what if HRMC has extracted all it could from Alphabet Inc? Remember that Google’s UK “business” is in Ireland, and the company pays the UK Exchequer only on profits from UK transactions. While our taxmen have failed to challenge the legality of this arrangement, the French haven’t - and look set to extract far more from the search giant, the Times reports. The paper reports France will get three times as much as HMRC, even though its UK revenue and profits are greater. The French are pushing for €500m, while a concession that Google’s French operation is really French could be worth even more.

The UK ignored 100,000 emails provided by a former employee, Google tax whistleblower Barney Jones, which cast doubt on Google’s claim that business transactions are Irish.

Osborne and HMRC seem to have forgotten the phrase: “In life you don't get what you deserve - you get what you negotiate” - and didn’t seem to negotiate very hard.

4. Osborne saves Google from Vestager?

Google and Facebook are potentially on the hook for far more if the European Commission decrees that Ireland’s tax rates are illegal state aid. The Commission’s tough competition Commish Margrethe Vestager has already decided that booking costs as royalties is illegal - and dinged it.

5. It puts the ‘crony’ into ‘crony capitalism’

It isn’t just the innumerati - Richard Murphy, Prem Sikka, Russell Brand, the Corbynite Left - who dislike the deal. Lots of Tories don’t either.

British business pay an effective tax rate of around 20 per cent, while US internet multinationals are structured to benefit. Free market backbench Tories including Steve Baker called for a complete overhaul of the tax system.

With the Conservatives throwing around favours that benefit Google, like the so-called "Google Review", an opaque back room deal looks like crony capitalism. Recall that in 2006, Cameron lauded Google at its Zeitgeist schmoozefest, “What Google has achieved is truly amazing ... You've begun the process of democratising the world's information,” he told the company.

The following year, Google paid for Cameron, Osborne and their entourage to tour the US, and the ardour only increased. “You create jobs, wealth and opportunity for our world and you should be proud of the amazing things you accomplish every single day,” Cameron enthused. He followed this with a call for “Google Government”

Maybe that’s exactly what we have today? ®

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