Rupert Murdoch is right, the tax deal with Google is 'token'

Rupert Murdoch may be right, well this time anyway. On Thursday he attacked Google's tax deal with the UK as "token".

Spot on.

Anger mounts over Google's UK tax bill

A British parliamentary committee will ask Google to testify about a back tax deal under which it will pay 130 million pounds (AUS$266 million) to settle claims covering a 10-year period.

After a six year investigation by Her Majesty's Revenue and Customs, Google, or rather its head company Alphabet, agreed to just £130 million pounds ($264 million) in taxes dating back to 2005.

"Google et al broke no tax laws," Murdoch wrote on Twitter. "Now paying token amounts for p r purposes. Won't work. Need strong new laws to pay like the rest of us."

21st Century Fox had 20,500 employees at the end of fiscal 2015.
21st Century Fox had 20,500 employees at the end of fiscal 2015. Photo: Christopher Pearce

Although this is rich, coming from the head of News Corp – a company that avoided paying a cent in net tax in the United Kingdom between 1987 and 1999, and which the Australian Taxation Office has classified as the highest-risk taxpayer in the nation – Murdoch's point has some merit.

The tax being paid in the UK may be a good deal for its government – and even that's under question – but not necessarily everyone else who is also after more tax from Google.

The UK deal was immediately lambasted by a host of European leaders.

George Osborne, UK chancellor of the exchequer, was behind the UK's diverted profits tax dubbed as the "Google tax".
George Osborne, UK chancellor of the exchequer, was behind the UK's diverted profits tax dubbed as the "Google tax". Photo: Krisztian Bocsi

In Britain, the Labour opposition described it as a "sweetheart deal".

Eva Joly, vice chairwoman of the Special European Parliamentary Committee on Tax Rulings, said it would question Britain's finance minister George Osborne about the "very bad deal" that "shows that the UK prepares itself to become a kind of a tax haven to attract the multinationals".

French finance minister Michel Sapin says that Google has to sort out its problems in France.
French finance minister Michel Sapin says that Google has to sort out its problems in France. Photo: Jasper Juinen

In France, where Google may be asked to backpay much as 500 million euros, its finance minister Michel Sapin said: " ... Google also has to sort out its problems in France," and that "we do not want to reach a one-off agreement, agree on a lump sum".

The European Commission's Competition Commissioner, Margrethe Vestager, has flagged a possible investigation of the Google deal.

European Union Competition Commissioner Margrethe Vestager may look into the deal Google made with the UK government.
European Union Competition Commissioner Margrethe Vestager may look into the deal Google made with the UK government. Photo: Bloomberg

"If we find there is something to be concerned about, if someone writes to us and says this is maybe not as it should be, then we will take a look," she said.

But this is just the start of tax deals between corporates and governments that annoy other tax jurisdictions.

Even the global plan to fight multinational profit shifting – the Organisation for Economic Cooperation and Development's Base Erosion and Profit Shifting (BEPS) plan – doesn't have global consensus.

It's been described by advocacy groups as a "recipe for disagreement and conflict".

On Wednesday 31 countries including Australia signed an OECD agreement to expose multinational tax avoiders.

The deal is to have country-by-country reports that will give tax authorities a more detailed picture of multinationals' tax affairs, including income and tax paid in every country they operate in, as well as detailed information about where and what kind of economic activity takes place.

Compared to where we were before, which was no information sharing and corporates playing governments against each other, it's a good start.

But guess who is left off the list of 31 countries to start sharing data in 2017-2018?

The world's number one tax haven, the United States. Yes, the nation which has overtaken Singapore, the Cayman Islands and Luxembourg as a tax shelter for multinationals and wealthy individuals doesn't want to share its information.

A research paper conducted by Alex Cobham and Petr Jansky found that in 2012 these US companies – many on the Fortune 500 – shifted $500 billion to $700 billion, or roughly 25 per cent of their annual profits, mostly to countries where these profits were not taxed.

This means $1 out of every $4 of profits generated by these US multinationals is not aligned with real economic activity. It ends up untaxed in places like the Netherlands, Ireland, Bermuda and Luxembourg.

And who loses out from the tax minimisation accounting genius employed by the likes of Apple, Google, Microsoft and others?

Firstly, the United States itself. This is why the United States hates Britain's so-called "Google tax" as well as Australia's domestic laws aimed at stopping tax avoidance.

Quite simply, it wants to collect the cash it has not been collecting for decades. It doesn't want others to get in first.

The problem is that other G20 countries including Germany, Canada, China, Brazil, France, Mexico, India, Britain, Italy, Spain and Australia, who have also been losing out – in 2012 US companies avoided an estimated $US1.45 billion ($2.04 billion) of tax in Australia – also now want to cash in.

That creates the inevitability of tax revenue wars.

Google itself noted there's 'more we can do' when it unveiled its 2014 Australian tax bill of $11.7 million (the company doesn't count its lucrative search engine business revenue that gets booked offshore).

Apple, meanwhile, has taken advantage of accounting rules that could allow it to pay virtually no tax in Australia on its profits in 2016.

As the ATO and companies negotiate over their future tax bills, other tax authorities, including the United States, will quickly move protect their tax base.

Expect more unilateral measures by governments to try and collect more tax from tech, energy and mining giants.

Expect to see governments and multinationals continue to lock in tax deals. It is better to bank a deal, in the eyes of cash-strapped governments, than risk leaving court empty-handed.

Most importantly, expect that in the battle for more tax revenue, governments are also looking at another fight: how to attract more business.

As long as Singapore offers a 17 per cent headline corporate income tax rate and a raft of other tax breaks that enable companies to pay even less, it will keep luring multinationals.

Murdoch knows that better than anyone. And Prime Minister Malcolm Turnbull probably does as well.

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