Andrew Wilson: Home truths about Google tax deal

Google pays the bulk of its corporate tax in the US - $3.3bn last year.  Nick Ansell/PA
Google pays the bulk of its corporate tax in the US - $3.3bn last year. Nick Ansell/PA
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“IN THIS world nothing can be said to be certain, except death and taxes” was Benjamin Franklin’s view in a letter he sent in 1789. In 2016 we know death remains a certainty for all and for too many too soon. Science has done remarkable things but immortality remains beyond our reach except in the minds of those who follow.

But taxes appear to be only certain for some of us. I am 45 and the father of three primary school kids, entering year three of a business start-up. I pay lots of tax. Income tax, VAT, business rates, fuel duty, insurance duty, spirits duty (well, I must find comfort somewhere), national insurance in all its forms, and corporation tax if I am lucky enough to work with colleagues to generate a profit. And that’s just the beginning of the list.

Tax is hard to conceive, collect and manage even in a local economy. In a globalised world the challenges for policy-makers are immense as was brought home this week when British public anger burst on the deal struck for US-headquartered Google.

It seems absurd a company of the scale of Google (parent company Alphabet Inc since October) can gain so much revenue yet pay so little tax on profits in the UK. Yet our tax authorities struck that deal and declared it legal and just. Meantime they risk other European countries getting more for less and the European Commission investigating whether the deal itself amounts to state aid.

From the perspective of Alphabet Inc and their leadership, their short-term duty to investors is to minimise costs and maximise profits across all their operations. But their long-term duty is to a deeper sustainability for the firm they steward.

Some 13 years before Franklin wrote that letter, a Fife man called Adam Smith published his Enquiry Into The Nature And Causes Of The Wealth Of Nations. And America declared its independence from Britain.

In his classic work, Smith devoted just under 900 words to his canons or maxims of taxation. His genius alighted upon four key points:

1. Equality: “The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state.”

2. Certainty: “The tax which each individual is bound to pay ought to be certain, and not arbitrary.”

3. Convenience: “Every tax ought to be levied at the time, or in the ­manner, in which it is most likely to be convenient for the contributor to pay it.”

4. Economy: “Every tax ought to be so contrived as both to take out and to keep out of the pockets of the people as little as possible over and above what it brings into the public treasury of the state.”

He concludes: “It is in some one or other of these four different ways that taxes are frequently so much more burdensome to the people than they are beneficial to the sovereign.”

It is hard to conclude anything other than that Alphabet Inc’s corporation tax bill fell foul of each canon with the possible exception of convenience – to them.

How do our authorities measure their profit? It is simply not sustainable for us to discount every effort that has gone into the creation of Google. The investment in its development, brand and technology all deserves a return. As does the risk borne by those who invested their capital in creating it in the first place. There is a justice in their headquarters seeking that reward as an element of profit sourced from global markets but created at home.

Think of it another way; I have a friend who grew up on a farm in Angus. His family have created a distillery. It has taken them bearing great risk and investing time, money, hope, love and no little expertise.

They will toil every day producing vodka, gin and creating their brand. In a decade they will have malt whisky which one day the world may buy. Their first bottle in America might sell for £50 and cost them £40 to get it to the buyer. Is the £10 profit created in the American economy or over a decade back in Angus?

That’s the conundrum we all face. The risk for firms like Alphabet Inc is that they win the legal argument and lose – comprehensively – the long-term faith of their public and with it their licence to exist.

That is what is playing out in real-time now across companies, institutions and markets post the 2008 crash. The issue also highlights the importance of countries working together to protect collective interests.

British citizens are right to seek transparency from multinationals and their taxation. But we should cast an eye also to the transparency of our own “territories” – Anguilla, Bermuda, the British Virgin Islands, the Cayman Islands, the Turks and Caicos Islands, Gibraltar and Montserrat – and the Crown Dependencies of Jersey, Guernsey and the Isle of Man. Those without sin can cast the first stone. Just a thought. «