Taxing times for tech companies

Very few of us like paying tax, but there’s a fine line between legitimately reducing your tax bill and actively avoiding paying the tax that is due. And at a time of austerity where everyone is tightening their belts, there’s obviously a push by governments to close loopholes and maximise the revenues they receive.

Given their high profile and obvious success Starbucks and Amazon have both been the subject of widespread condemnation of their tax avoidance methods, and I’ve covered Starbucks inept PR response in a previous blog. Google was up before a House of Commons Select Committee last week (for the second time), backing up its claims that, despite revenue of £3 billion in the UK, all its advertising sales actually take place in the lower tax environment of Ireland. Google boss Eric Schmidt has countered that the company invests heavily in the UK with its profits, including spending £1 billion on a new HQ that he estimates will raise £80m per year in employment taxes and £50m in stamp duty.

Apple is the next company caught in the public spotlight, with CEO Tim Cook appearing before a US Senate committee that had accused it of ‘being among America’s largest tax avoiders’. Meanwhile, the loophole that sees Amazon and other big US ecommerce companies avoid paying local sales taxes is being challenged by a new law passing through Congress, with estimates of between $12 and $23 billion extra being collected.

Given the close links between Google and UK politicians (Ed Miliband is appearing at a Google event this week and Schmidt is expected to meet David Cameron on his current UK trip), the cynical view is that this is a lot of sound and fury, signifying nothing. But it does create an image problem for the companies involved, particularly at a time when we’re all meant to be in it together.

Obviously the most popular thing for companies to do would be to re-organise their tax affairs so that they meet the spirit as well as the letter of the law. But that’s not likely to happen given the enormous sums at stake. Instead expect increased calls for global tax reform (so that the organisations involved don’t have to operate the way they are currently ‘forced’ to) and a slew of feel good announcements that demonstrate the level of investment and support for the UK economy by the companies concerned. Being ultra cynical perhaps the whole tax situation explains the huge support by big tech companies for Tech City – it is simply an elaborate way of diverting attention from their financial affairs…………..