However, I believe the criticism that has been launched at these groups is not entirely with foundation or a grasp of the tax rules in the first place.
Anyone working in the tax industry will tell you that tax is not the simplest rule book on the shelf. Come to that the majority of tax payers will support this view. That's probably why they employ tax advisors!
So – what is all the fuss about? Well – as I alluded to earlier these global giants are allegedly paying little tax in the UK. ‘Why?’ you may ask ‘is that so?’ Well, the first point to take on board is as far as I am aware, none of these companies have broken any rules or done anything illegal. Google has apparently been subject to a vigorous Audit by HMRC, the findings of this investigation are that their affairs were entirely legitimate.
George Osborne has now introduced a new tax – Diverted Profit Tax (DPT). This is to tax companies that are found guilty of having artificially diverted profits. The Treasury claim that DPT will raise £1.3bn by 2020. Even if this does come to pass, we are talking about a drop in the ocean compared to the total tax take.
The recent £130m settlement with Google for 10 years of back taxes does not have anything to do with DPT, but is a settlement based I believe, on how the company cross charges services from one region to another – namely transfer pricing.
The key to understanding why the UK tax take is comparatively low from these global companies is to realise and accept that the world has changed. A clothing company once designed, made and sold its goods within the UK to a population who travelled within its boundaries to purchase them. Today, manufacturing, design, marketing and back office administration is delivered from different regions around the world, wherever costs are lower. We should also not forget that countries compete with one another to attract business within their boundaries. The UK government hands out sizeable tax breaks to film, TV and games companies to attract them to set up within their shores. The Irish government taxes corporates at 12.5% which currently is competitive within the EU. What I am saying here is the taxing of companies around the world is not dissimilar to an online trading platform where the winner goes for the cheapest tax option.
Two other points should be considered. Firstly, many traditional well known trading companies have holding companies or establishments in tax friendly countries such as Luxembourg, Lichtenstein and Gibraltar. Bear in mind the biblical citation ‘Let him who is without sin cast the first stone’.
Secondly, the major tax take in the UK is for employee taxes. All the aforementioned companies employ large work forces in the UK. Google employs 800 in London alone at an average salary of £160,000 a year. That adds up to a lot of tax.
As I said – tax does not make easy reading.