The art of taxation consists in so plucking the goose as to get the most feathers with the least hissing - Jeane Baptiste Colbert
IT WAS A BUSY WEEK for technology companies explaining their tax situations.
The week started off with news that a £150m rural mobile contract had been awarded to Arqiva, the firm that in January came under the spotlight for alleged dodgy tax practices. On Tuesday, news broke of another government contract for Arqiva in the form of providing the infrastructure to support the rollout of not only that £150m rural mobile deal but free WiFi across Camden. And Wednesday brought the third government deal in as many days for Arqiva, with news that it had also won the contract to provide free WiFi across Hammersmith and Fulham.
By Thursday, attention had shifted to some larger names in the tech industry. The day began with complaints over Amazon paying only £2.4m tax in the UK last year. This was despite making sales of £4.3bn and receiving £2.5m in government grants, so effectively Amazon cost the country £100,000 over 2012.
On the same day, Google was back in the tax-dodging spotlight. Margaret Hodge, chair of the Public Accounts Committee (PAC) said that the web giant was devious, calculated and unethical for misleading parliament over its tax affairs six months ago, adding that Google certainly does "do evil" when it comes to paying taxes.
Google has previously stated that its UK sales were worth £3.2bn in 2012, from which it paid a less-than-whopping £3.4m in tax.
A busy Thursday was rounded out by Apple throwing its hat into the ring on tax affairs across the pond. Apple CEO Tim Cook revealed he would visit Washington to testify about stashing more than $100bn overseas.
And to wrap up the week, it looks like Amazon will be called back to parliament to go over its tax processes again.
The firms all have their reasons for why they have paid such low levels of tax.
When I questioned Arqiva on whether it's fair that a firm contributing little in the way of taxes should win three government contracts in a week, Nicolas Ott, the firm's managing director for government, mobile and enterprise pointed out that the firm has invested nearly £1bn in the UK's communications infrastructure.
"The Mobile Infrastructure Project awarded by DCMS will provide mobile signals to rural areas where there is no coverage today. Our WiFi business is also growing rapidly and the contracts to deliver WiFi to various London Boroughs will help millions more people be connected," Ott said. "We will continue to bid for new infrastructure and communications projects where we believe we can offer the best possible service to the public and support a thriving digital economy in the UK."
So the basic argument here seems to be that the firm spends money on useful projects for the country, like digital access, so why should it have to then pay as much tax as other firms who do less useful things, such as betting shops or hairdressers?
I certainly can't argue with the point that the rural mobile and free WiFi projects will benefit UK taxpayers by offering more internet access across the country. But there's still the issue of whether the government should be awarding the same contractor these lengthy and costly IT contracts, and whether all players in the communications space are getting similar kinds of tax allowances agreed by HMRC.
Google and Amazon are both sticking by their explanations that even though they are billing millions of pounds' worth of sales from UK customers, the 'selling' isn't actually done in this country - a similar argument to that used by Apple about its US taxpaying processes.
Amazon.co.uk is simply a service provider for its Luxembourg operation, which sells the items to UK buyers. Similarly, Google's northern Europe boss Matt Brittin told the PAC, "The UK team are promoting our properties and encouraging people to spend money with Google. Clients may well feel that they're selling, we hire people with sales skills and they are encouraging people to spend money, but no one in the UK team can execute a transaction, no money changes hands."
So what can the government do about this? These firms employ thousands of people in the UK, who will all be contributing their own National Insurance (NI) and tax payments, and therefore benefiting the economy.
There are some drastic measures the government could take. It could enforce the 24 percent corporation tax on all firms, regardless of what business they are in and how beneficial it is to the economy; it could stop giving grants for projects that would result in a substantial increase in earnings for the private company; it could set a minimum tax payment amount that any firm with sales of a certain amount would have to pay, rather than a percentage of earnings; it could join forces with the US and put pressure on countries like Luxembourg and Ireland to raise their tax levels.
But in reality the government will find itself in a difficult position if it does unequivocally prove that Google and Amazon are indeed selling in the UK - as anyone listening to the rather patronising explanation of Google's Brittin will no doubt believe - and should be dumped with huge tax bills. For all of Hodge's bluster, David Cameron and co will want to keep these firms in the UK, not only for the jobs they bring with them, but for the 'cool' factor the government believes they bring the country.
So the tech giants can rest assured that even if they have to admit that selling does take place here, any increase in tax bills will be offset by new government grants similar to those awarded to Arqiva, whether for digital apprentice schemes, or new fulfillment centres or just being generally cool and digital. µ
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