

UK Chancellor – “Google Tax” on Diverted Profits to Come into Effect Next Month - mitchll
http://techcrunch.com/2015/03/18/budget-google-tax/

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Brakenshire
Ultimately these companies rely on infrastructure which is in one way or
another publicly supported. Amazon's $6.3m corporation tax bill on $6.5bn
revenue will not even pay for the wear and tear on the roads necessary to
deliver their products.

Whether or not this is the best way, or perhaps it should be a more
international process through the OECD, it's obvious that it's not sustainable
for companies to off-shore their profits, and pay very little corporation tax,
often even in their home country. Especially when in so doing they undercut
the small businesses that don't have the lawyers and accountants to set up
these kinds of highly artificial schemes.

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ptaipale
I don't understand this argument. Amazon's corporation tax bill isn't supposed
to pay for the wear and tear on the roads necessary to deliver their products.

Amazon - or its customer, actually - pays for the delivery of goods on the
said roads. That delivery price pays, among other things, for the wear and
tear of roads, more than enough.

Price of delivery includes the cost of vehicle deliveries (and employment
needed by those delivery services, etc) and those costs include the taxes,
duties and tolls collected from vehicles.

I don't know situation in Britain so well but I expect that it's like other
countries: the taxes collected from vehicle traffic are much higher than the
cost of building and maintaining roads. (In my country, the factor is 7:
government collects 7 000 000 000 € per year from vehicle traffic as car
taxes, fuel duties etc, and uses about 800 000 000 € per year to building and
maintaining public roads.)

I just cannot follow the logic of the above argument. A more logical approach
to me is "they've got money, let's take it!"

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dataminer
Roads are just one example, Amazon or any other corporation depends upon a
whole environment provided by the country and its government.

Beside roads the environment includes, law and order services, maintenance of
military, funding of research by universities, public/partly private education
system, communication services, health care services etc.

Also if I am a small corporation in UK, I have to pay my fair share of taxes,
why should the multi billion giants be exempt from it?

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charlesdm
They are not exempt. Nothing is stopping you from setting up a similar
structure. We all play by the same rules globally.

Whether it's cost efficient to do is a different matter.

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dataminer
You have raised a good point about exemption, but how can a small local UK
corporation setup same structure to siphon profits to Bermuda? For example, a
small local architect running consultancy as a corporation.

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charlesdm
You’re right, they can’t. But the question is not so much, what is the actual
rate of tax we pay? It’s more along the lines of, how much actual money is
being paid? If one considers Amazon, I don't think anyone dares say they do
not significantly contribute to the UK economy by their presence (directly &
indirectly).

As long as the rates are not unified globally, there will always be a reason
to avoid tax. And for multinationals, there will always be an incentive to do
it, because they have massive scale. A 0.1% tax difference might mean millions
to them, and it might mean only £100 to you. If the difference is millions,
why not set up a small office somewhere?

Let’s say you are a ‘tiny’ multinational. You own two shops, one in the UK
(20% CT) and one in the France (33% CT). Both shops operate under the same
brand. You own the IP rights to the brand. The sane thing to do here is to
have the UK entity own the brand rights, because then you can charge a royalty
(say, ~1% of turnover) to your french company.

Some people call this avoidance, and not paying your fair share. Sure. But,
one company actually owns the rights and the other doesn’t. Should that be a
“free” transaction? If you were to license your brand to a third party company
in Dubai (not related to yours) to set up another shop, would you also give
this for free? That’s part of where the problem lies. Also, if the brand
rights would be owned by the french entity, the UK might (will?) now charge a
sort of diverted profit tax. For diverting 'profits' to a higher tax country.

Disallowing a deduction because some other connected entity owns the brand is
not right, because that means you'd be getting the brand for free. You'd
actually be paying tax on a profit that did not exist in the first place.
Overcharging for brands has never been allowed. Before this DPT tax, it was
not allowed either.

Now image a large multinational. Luxembourg, for example, charges a net tax
rate of ~5% on IP income. I charge the same royalty as tiny multinational.
That 1% just became a whole lot bigger. And yet, that’s probably the correct
value of the brand. Think about it this way: if you take off the brand, how
many units would you sell? That one percent might be tens of millions for a
large multinational company.

As companies grow in scale, so do their synergies and advantages. Lower tax is
one of them, paying less to suppliers is another as is the ability to increase
prices.

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dataminer
That is a very interesting argument never thought of this issue in terms of
royalty, brand and IP rights. You are right, it makes more sense now.

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elcct
Or they could just lower the tax so it won't be cost effective to avoid it.
End it is the end consumer who will eventually pay this.

