Thank Donald Trump For Google’s Rising UK Tax Bill

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Yes, yes, of course we know Orange Man Bad – but we should still apportion blame and credit where they’re due, as with the rise in Google’s corporation tax bill in the UK. For this has really come as a result of the changes in the American taxation system that Donald Trump brought in.

The thing being that hiding profits in the Caribbean doesn’t really work any more for an American corporation. Thus, might as well pay tax here in Britain for that can be deducted from the American tax bill anyway. Thus the UK Treasury gains revenue as a result of changes in the American taxation system. Odd but true, them’s the way the incentives work:

Google’s UK tax bill rose to £67m last year as the US internet company awaits Treasury plans to raise hundreds of millions of pounds with a tax on digital giants. Accounts for Google UK Limited revealed its corporation tax charge increased from £49.7m to £66.8m, after profits in Britain increased from £201m to £246m last year. It comes as the Treasury considers a new digital levy designed to significantly increase Silicon Valley companies’ tax payments in the UK.

The corollary of this being of course that we don’t need a new digital levy and all that.

The old situation was that Google sold everything into the UK – and most other places – through Ireland. Then by that Double Irish with a Dutch Sandwich stuff they were able to spirit the profits off to Bermuda, where they stayed and didn’t enter the US. They weren’t therefore taxed in the UK because the sales weren’t there. Not taxed in Ireland as the business wasn’t there. Not taxed in Bermuda, there’s no corporate taxation there. Not taxed in the US, foreign profits that don’t enter the US aren’t taxed. Low overall tax bill, maybe 2% of foreign profits as Apple used to report.

Also, any foreign taxation of profits gets knocked off the tax bill that is due in the US. OK, that gets a bit more complex but that’s the gist.

Now we’ve the new system. US foreign profits do pay US tax. Whether or not they enter the US. Foreign taxes paid are still knocked off the US tax bill. And there’s all that screaming about how Big Tech must pay taxes here in Europe. So, what’s the incentive now for a US company?

Declare the profits – or at least some of them – in Europe, take the remainder back to the US, claim those foreign taxes paid off the US tax bill and still come out ahead off the game. After all, the company doesn’t care who the taxes are paid to, does it?

Thus it’s Donald Trump’s changes to the US corporate income tax which is leading to Google’s rising UK corporation tax bill. Given the deductibility of that UK tax bill over in the US why the hell not pay a bit more here to reduce the political heat?

The joy of this is the spitting rage it will induce in the tax justice campaigners. Their decade and more of campaigning has nothing to do with this. Instead it’s that Bad Orange Man who has achieved their goals. Fun, eh?

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Jonathan Harston
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Jonathan Harston

I’m sure they can contort it into claiming victory in forcing Orange Man to increase taxes.

Quentin Vole
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Quentin Vole

My understanding (and I’m no tax expert) is that US taxes on repatriated profits were much higher than most other countries. The Donald has reduced them to be more in line with what the rest of the world charges, and so businesses have less incentive to stash profits in offshore tax havens (where they’re limited as to what they can do with them). And, as Tim says, they have less incentive to minimise their taxable profits in the UK (and elsewhere).