Dame Homer in Googleland

Dame Homer in Googleland

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So Google have agreed to give HMRC some of their pocket money. This despite always having paid the correct amount in past years (so they say). If this is true two things follow. One is that the £120m isn't tax and two is that it cant then be penalties or interest either.

So what is it? It must be a payment to protect Google's reputation or something along those lines. And as such wouldn't it be allowable as a deduction against future profits?

They are not behind you Dame Homer. They are way ahead of you.

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By User deleted
24th Jan 2016 10:14

Don't think £130m for a decade's tax is quite the cause for celebration some politicians are trying to make it appear.

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Brunel
By Brunel
24th Jan 2016 12:42

Losing sleep

£20.4m tax in 2013 on sales of £3.8bn, highly profitable business

The £130m announcement is a massive win for HMRC

Larry and Sergei must be losing sleep 

 

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Replying to cyoung:
Stepurhan
By stepurhan
24th Jan 2016 12:58

Tax isn't on sales

Brunel wrote:
£20.4m tax in 2013 on sales of £3.8bn, highly profitable business
Calculating tax as a percentage of sales is always a meaningless exercise. Tax is, and always has been, on profits. A company simply providing the personal services of its directors and a company manufacturing complex machinery will have vastly different figures for tax as percentage of sales, even if they then pay tax on all their profits.

So the question is just how profitable is Google? If you stripped out the movement of money around the world and worked out the actual net profit after the actual costs of providing the services, what would a reasonable tax figure be. Anyone know the answer to that? I suspect that the tax figure will still be woefully low even on that basis, but at least we'd be in the position to have a sensible discussion.

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Chris M
By mr. mischief
24th Jan 2016 15:09

Not that tough

In my view this stuff really isn't anything like as hard as these so-called tax geniuses make it out to be.

In the quarter to 30 June 2015, Google reported 17.7 billion of sales and 3.9 of GAAP net income to Wall Street.  So that's a net profit margin of 22%, after all overheads such as director's hefty remuneration, tax consultants' hefty fees and so on.

Okay doky we have sales of £3.8 billion for 2013.  That's £836M please Google for 2013, less a pro-rata share of any losses brought forward and so forth.  Having sorted out the £836M for 2013 we can then start looking at the other years.

For publicly quoted companies this sort of cutting through the tax accountacy crap is easy, because on the one hand the directors want to minimise tax.  But a much greater motivation is to maximise earnings, given that their grossly inflated bonuses are largely a factor of earnings.

For private equity I still think this sort of thing is achievable, given that detailed accounts are produced for such ventures.  So that just leaves very private and secretive operations such as the Top Man group, where no doubt all sorts of tricks would be played and no doubt the chumps at HMRC would not really be up to the job.

But hey ho the United Kingdom would be tens of billions per year better off if we just got the quoted company and private equity jokers sorted.

 

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By Harrison88
25th Jan 2016 14:24

Not really

Mr.Mischief, I'm afraid that's not how it works.

The basis for determining how much of its profits should be in the UK for UK sales is not simply "all of it" but rather based on the functions it performs in the UK, the assets it owns in the UK and the risks it takes in the UK.

Take Amazon for example. It's website is the main tool for everything it does. The website is developed and maintained in the US. The senior management are in the US. The only thing that happens in the UK is they take a few small boxes and put them in a much bigger box with far too much packaging paper. It wouldn't be fair if the UK took 100% of the profit it earned on UK sales. There would be no incentive for the US to invest more money on the website.

If Amazon earn £20 overall on your £100 pair of shoes that you just bought, the UK should not be able to claim all £20. Instead this £20 should be split based on where the functions, assets and risks are borne.

At the minute, Amazon and Google are booking sales via Luxemborg or somewhere like that. The UK is only getting a service fee income (e.g. marketing services or warehousing services), which attracts a simple cost plus ~5% mark-up. Now they are moving to booking sales in the UK and as such, the profits will probably be a percentage of sales (~2% to 4%). The balance of profits will be left in their entreprenuerial legal entity in the US to remunerate them for all of their R&D, assets and risks.

The US companies really have been abusing this and in a lot of cases, the royalties charged to its subsidiaries are far too high (e.g. Starbucks fee per bean bought as "remuneration" for procurement services in Switzerland). But, things will be getting better.

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