To Be Effective, the Google Tax Could Use a Google Designer

Wow, it sure has been beat-up-on-Google month. Even the otherwise reticent and bracingly capitalist Brits have jumped into the act with a new Google tax.

Of course the Google tax is not aimed exclusively at the Goog, it's just that the search maven is the poster child for tax avoidance in Europe.

This is part of a wider assault on American technological hegemony which will continue to manifest itself at least until the embarrassed European officials who crafted and then granted all these corporate tax dodges see popular outrage submerged in a carbo coma of holiday alcohol and tryptophan. Or until they actually draft and institute policies that encourage innovation and entrepreneurship. The smart bet is clearly liquor and carbs. JL

Robert Shrimsley comments in the Financial Times:

The Google tax is likely to be a pretty complex beast. So complex that the authorities may well need someone like Google to design it. The work on driverless cars has shown a better world awaits if human frailty can be replaced by automation. Perhaps driverless taxation is the answer.
Britain is going to get its very own Google tax. George Osborne, the chancellor, confirmed the plan this week. He has even decided how much money it is going to raise which is quite an achievement considering that no one seems to know how it is actually going to work.

Strictly speaking, it is not really a Google tax. It is a tax on foreign multinationals using complicated schemes to minimise their UK tax liability. Google is merely one of the highest profile targets, choosing to book its revenue from British sales in Ireland where corporation tax is far lower. Not that Google is actually paying much tax in Ireland either, but it rankles that the tech group is choosing to not pay much tax in Ireland when it could be choosing to not pay much tax here instead.On the other hand a Google tax does sound friendlier than most taxes, except perhaps to Google. A Google tax is wacky and fun. Your tax form is brightly coloured and has a different logo every day to commemorate someone’s birthday. This month, for example, it could mark the 13th anniversary of the incorporation of the International Accounting Standards Board as a tax-exempt organisation registered in Delaware.

As you complete it, Google suggests other taxes you may like to pay and offers useful related information like the penalties for non-compliance.

The idea of whacking foreign firms that pay negligible tax in the UK is, understandably, fairly popular but experts are thus far rather puzzled as to how it will work. The premise in Mr Osborne’s Autumn Statement is that it will be a charge on “deemed profits” which makes it more of an anti-avoidance measure than the kind of extra tax that might fall foul of international rules.

How exactly the British tax authorities will “deem” profits would appear to be the big secret in this baby, especially for companies like Amazon which do not make a profit. As a civil servant might say: we look forward to seeing the detail. Given that deemed profit will be taxed at a higher rate than corporation tax, the entire thing may simply be a big stick being waved at foreign companies in the hope they will declare more profit in Britain.

If not, however, the Google tax is likely to be a pretty complex beast. So complex in fact that the authorities may well need someone like Google to design it for them. This would not only be fair since it bears the company’s name but would offer the kind of innovative tax thinking and algorithmic insight that only a Google engineer could bring to the problem.

Google could start by geolocating the salesperson selling the advertising slots and the purchaser. A double match in the UK would be a start. But this still only gets you revenue.

Part of the problem, frankly, is the analogue and unilateral thinking of Her Majesty’s Revenue & Customs. If Google were really going to take on this problem it would wish to tackle the matter more imaginatively.
The central issue, for example, is that the world’s treasuries have designed a tax system for the greater public good but which rewards those who wish to circumvent it with suboptimal tax altruism.

As the groundbreaking work on driverless cars has shown, a better world awaits if human frailty can be replaced by automation. So perhaps driverless taxation is the answer.

More likely, Google would turn to the tried and trusted auction model it uses to sell advertising search terms. So the British government might auction preferential taxation rates to foreign multinationals. As previous spectrum sales show, companies are prepared to overpay dramatically for scarce resources. The staged auction of low corporate tax permits to foreign multinationals based in Britain could be a significant revenue generator for the UK Treasury and one with regular revenue. The danger here is that success would quickly be imitated by other countries so an auction by governments of low tax permits would soon be inverted by corporate Google to be an auction of potential tax revenue to governments. This could even prove revenue generative for companies as governments overpay for the other benefits of locating these businesses in the country.

Which, if you think about it, is rather what we have now. Talk us through the deemed profits wheeze again, George.