Bill Carmichael: The Google tax, daylight robbery and the case for lower taxes for all

Talk about daylight robbery!

So I can well understand the utter fury from ordinary taxpayers over the “sweetheart” deal offered to Google
under which the search engine giant 
will pay £130m to cover a decade in back taxes on revenues of many billions – described as a effective tax rate of just three per cent.

No swingeing penalties for late payment there! Just a series of cosy meetings with HMRC officials in which
a mutually agreeable figure was arrived at. We don’t know the details of the
deal because these things are confidential.

Is it any wonder that many people sending off their hard earned cash
to the Treasury this weekend are 
asking: “Why can’t we have a deal like Google?”

The Chancellor George Osborne, in a rare but disastrous misreading of the public mood, boasted of the deal as a “victory” – a position that became rightly ridiculed when it emerged that Google had agreed to pay far more in taxes to the French and Italian governments, despite the fact that they do less business there than in the UK.

If ever there was a story that bolstered the idea that there is one rule for the
rich and another for ordinary folk, this was it. To Osborne’s embarrassment, he didn’t see it coming and I suspect this crass error will stay with him for some time.

But before we grab the pitchforks
and flaming torches, and lead the
mob on Google’s headquarters, let’s 
pause for moment and consider a few truths.

The first is that Google is precisely the sort of innovative and entrepreneurial outfit that we want doing business in the UK. It spends billions of investment in new technology, employs around 5,000 people in Britain and does in fact pay lots of tax in the UK – more than £30m in corporation tax in 2014, plus of course local business rates and national insurance.

That pays for a lot of schools and hospitals and the last thing we want to do is to scare successful companies like Google away.

Second, the three per cent effective tax rate is highly misleading. Corporation tax is levied on profits, not total revenue, and if a firm does not make much profit it won’t pay much corporation tax.

Of course Google, like other multi-nationals, will employ lots of clever accountants to make sure the profits are funneled through the lowest tax jurisdictions in order to minimise the tax bill. The company executives would be failing in their duty shareholders if they didn’t do this.

And as Google pointed out this week, the companies don’t make the rules and it is not up to them to decide what a “fair” rate of tax is. Instead they are obliged to obey the law – and Google insists it is fully compliant with all the regulations. If governments don’t think the rules are sufficient, then it is up to legislatures to change them.

What we cannot have is politicians deciding on a whim what a “fair” rate of tax might be and plucking a figure from the air.

Third, it is worth pointing out the stinking hypocrisy of Labour. Much of the back taxes owed by Google covers years when Labour was in power – when they were “intensely relaxed about people getting filthy rich”. What was the effective tax rate for Google under Blair and Brown? Zero per cent.

So what can be done? The worst answer would be to increase taxes – as Labour wants to do. That will just see firms like Google export more of its profits and pay even less tax.

Google already puts much of its business through its Irish offshoot, where corporation tax is 12.5 per cent, compared to 20 per cent here.

So here’s a radical suggestion – how about lowering taxes in the UK? If more companies could be persuaded to base their operations here, more would pay tax and more money would flow into the UK Treasury.

Given this, a three per cent tax rate sounds a brilliant idea to me – and if it were extended to ordinary taxpayers it would certainly get my vote.