I was a guest on Jamie East’s show on TalkRADIO to talk about the 3% tax on the revenues of tech companies that France aims to introduce. Philip Hammond aims to do the same thing here, of course – he outlined a 2% tax in the last budget. Sadly, he won’t be in the job long to see it through and it seems unlikely that the UK’s new Prime Minister will want to upset the sensitive US President, particularly when our post-Brexit hopes, supposedly, rest on a free trade deal with the US.
Google (Alphabet these days) argue that they already day the appropriate tax rates. In the UK that’s true. They declare revenues here of about £1.4 billion. Of that, though, £1.2billion in ‘administrative expenses’. In other words, shifted back to head office. That leaves the UK with a profit of around £250 million.
As I try to argue in this short radio segment – although I’m not entirely sure Jamie gets it – we should really be looking at the profit margins of companies on a global basis.
For example: Alphabet’s profit globally is more than half of it’s revenue. Nice work if you can get it! In the UK their margin is less than one fifth of revenue. How can that be? How can it be implicitly by 2.5 times more expensive to sell a service product in the UK than it is in the USA?Particularly when most of the product development, research and infrastructure will have been required to develop the services for the US market.
It’s a different story for manufactured goods. You have shipping costs to contend with. Tariffs are often applied too – increasingly so.
So for tech products, surely we should be assuming the the profit margin is comparable with what’s achieved in the US. That would mean Alphabet would be paying 2.5 times the tax here. Tech companies should be called on to provide compelling evidence why the profit margin would be so different here.
Otherwise, we get the present situation where tax is paid where the tax is lowest. That’s why Google, Facebook and Amazon base their EU headquarters in Ireland – because the tax rate is 12.5%, against an EU average of 21.9%.
Of course, under a Boris government we’re more likely to drop plans for a transaction tax on tech, and drop our pants on corporate rates. Just wait and see.