How El Reg predicted Google's sweetheart tax deal ... in 2013

Is this really the way we want to do our politics now?

Comment “Google will shrug off this week's tax woes with a flick of its robotic tail, and politicians and tax campaigners will declare 'success'," or so I predicted here not two years ago. The ad giant would make a symbolic gesture on paying UK corporation tax, and we’d all be told to go home. For once, I’m afraid, I was almost completely correct.

Today, we’re supposed to be cheering UK Chancellor of the Exchequer George Osborne for “bringing Google to heel” and forcing one of the world’s most profitable companies to pay some UK corporation tax. A little bit of tax. In fact, a very little bit of tax.

Already the world’s largest consumer data processing company, Google parent Alphabet Inc is on course to take over from Apple as the world’s most valuable company, but quite legally has paid almost no tax on its highly profitable £1.5bn annual business in the UK.

For 2011, Google’s UK corporation tax bill, according to one whistleblower's estimate, would have been much higher than Osborne's deal, and Google is much bigger in 2015 than it was in 2011.

But there are many good reasons for being disturbed by the deal, reasons that resonate across the political spectrum. The deal is a damning indictment of how we do politics: the task of achieving lasting change through consensus, rational persuasion, and building widespread support for a position.

If politics can be bypassed through opaque back room deals on tax, with representatives of our elites settling on a mutually agreeable position, why not leave everything to opaque back room deals? They know best, after all, and "showing their workings" (as your maths teacher always asked you to do) to us plebs is not necessary.

It’s also a sign of the cynicism with which political operators such as Osborne work today. Osborne has played the extremes against each other. On one fringe, the school that advocates Buchanan's Public Choice Theory, namely that all politics becomes corrupt, a cosy corporatist alliance of big business and bureaucrats, so we shouldn’t bother with it at all.

On the fringe of the tax campaign, all business is irredeemably evil, and profits are immoral, since every penny of profit (as Britain's leading philosopher Russell Brand insisted) must have been robbed from someone else. So the more profits you punish with taxes, the more moral you are. Heaven awaits you.

Osborne’s deal dares each side: 'Happy now?'

And it's also hypocritical. Prior to the General Election, Labour leader Ed Miliband was pole-axed by a former pop star, who stated “you can't just point at things and tax them". But that’s just what Osborne has done. He pointed to Google/Alphabet Inc and taxed it, with HMRC extracting an arbitrary sum of money, seemingly without any legal basis for doing so. It’s a sweetheart deal.

This in itself is troubling, too. If Google’s voluntary contribution of around £130m a year is “fair”, on what basis exactly has this been calculated? We don’t know. We know HMRC went through Google’s books and plucked a number out of the air. It’s substantially lower than what Google whistleblowers believe to be a fair number.

What we do know is that we don’t want to tax companies just because we can, because most (and some argue all) of corporation tax is paid by the employees, and represents a significant dead weight cost.

There are dead weight costs to every tax, and the cost of taxing profits is lower wages and lower investment, two things we generally think are bad. “Tax justice” campaigners can often be heard saying that Company X “made billions in revenue”, which, erm, rather gives the game away. Tax isn’t paid on revenue but profits. Amazon ploughs almost everything back into Amazon. So “justice” is about punishment beatings, not increasing the fiscal basis.

Incidentally, the incidence and dead weight issues suggest that we should shift our taxation base to property as it’s harder to avoid property tax (and we don’t want assets to become speculative bubbles) and capital gains. But that’s another argument.

If "tax justice" campaigns are really primarily a platform to advertise the campaigners' superior moral virtues (as a lot of campaigns on the left today are, sadly), rather than actually changing taxation so, y’know, corporations pay more tax, Osborne has called their bluff, relying on the shallowness of their support.

Do you want symbolic victories or real change, Osborne asked. Here’s a symbolic victory. You’re not going to get any more, because your political coalition is so weak. I’m not scared of you, he’s saying, and I know after you've moaned for a bit, this will shut you up.

Where’s the Quid in the Quid Pro Quo?

The deal raises further troubling questions. If Alphabet Inc voluntarily offered to pay a little tax, what has it got from HM Government in return? It didn’t have to pay any tax, legally, and all it had to fear was looking bad. So, it’s legitimate to speculate what Google might have got in return from our Tough Guy Chancellor.

In the last Parliament, Google successfully instigated a major policy review that was later dubbed the "Google Review" on a bogus premise. The review contained bright ideas such as weakening UK citizens' ownership rights of their digital property, the so-called “Instagram Act”, thus allowing giant internet companies to profit from it. This was later watered down after our bureaucrats discovered much of it was illegal under international copyright treaties.

London's Mayor, Boris Johnson, argues that if you’re unhappy with the taxes large corporations are paying, then you should change the law. What he omits to mention is that in a European single market, nobody should have to pay tax twice.

Back in 2013, I also pointed out that the amounts lost to the taxpayer were dwarfed by the potential revenue from a healthy digital economy, one based on rights markets, and real transactions valuing digital stuff (like your photos, for example).

"Google would surely be a larger company in a vibrant transactional digital economy of the future. The company's scale and large systems know-how are useful assets. But for Google to win, it is not necessary that everyone else should lose,” I wrote previously.

“Because Google knows the tax campaigners are satisfied with symbolic, largely meaningless gestures," I scribbled down in 2013, "it will make a symbolic and largely meaningless gesture. It could miraculously move a few transactions which are technically completed in Ireland to the UK, bringing them within reach of Her Majesty's tax officials. It could open its new Kings Cross HQ to underprivileged children.”

It seems it doesn’t even have to do that. ®

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