As the Daily Mail has reported (amongst many others):
The boss of Google last night said he was ‘very proud' of the elaborate structure that helped the search giant slash more than £200million from its UK tax bill last year. Taxpayers were left to fund the shortfall after Google contributed just £6million to government coffers — despite making sales of £2.6billion. MPs on the influential Public Accounts Committee last month slammed the group's methods as ‘immoral'.
[In contrast] Google chairman Eric Schmidt said he was 'very proud' of the elaborate structure that helped the search giant slash more than £200million from its UK tax bill last year Mr Schmidt, who is estimated to be worth £4.6billion, said: ‘We pay lots of taxes; we pay them in the legally prescribed ways. I am very proud of the structure that we set up. We did it based on the incentives that the governments offered us to operate. It's called capitalism. We are proudly capitalistic. I'm not confused about this.'
I guess I have to admire the honesty.
I also have to name this behaviour. I think it's not just immoral; in Google's terms this is definitely doing evil, something said it would never do.
Is it too much to say such a thing? Is it wrong too to recall the comment of former British Prime Minister Edward Heath, who described Lonrho in the 1970s as "the unpleasant and unacceptable face of capitalism". Is it wrong too to recall the response of Lonrho chief executive Tiny Rowland who said that he would not want to be its acceptable face? Hasn't Schmidt just done the same thing?
I think all such sentiments are fair. But I need to say why, briefly. Firstly, by deliberately avoiding tax Google has shown contempt for the states that grant it the right to trade within their jurisdictions. In the process it shows contempt for their laws, the privilege of limited liability that they grant, their tax systems, and most of all their right to impose their democratic will on those who trade within their domains. It is, not to put too fine a point on it, challenging the whole structure of our society which has proved to the the foundation of our wealth. To describe that as an act of aggression is an understatement. It's an understatement because this is an attack on democracy itself.
Second, this is an attack on Google's shareholders. The money hidden in Bermuda cannot be distributed to the shareholders of Google without tax being paid: Google says it will not pay that tax so these funds are beyond the shareholder's reach. The shareholders seem not to care: they think the markets will value this unreachable cash dollar for dollar so they believe that it turns into a capital gain. But that can't be true forever: all gains are based on income prospects. Google is in the long run denying its shareholders an income prospect. That will be valued in the end and this will reduce shareholder value. Soi this is definitely not an action in long term shareholder interest - which is what matters. Shareholders too often get these things wrong: they did pre 2008 remember, thinking that if the market prices something in the short term all will be right in the long term. The behaviour that Google typifies is another case of a forthcoming market crisis when it is realised that this business model, like that of the banks pre-2008, is utterly flawed.
Third, this treats Google's users with contempt. It's Google saying, we can free ride the system and you can't. In effect it's Google saying it can free ride its own users. More than that, it's not only free-rising them, because tax is now a zero sum game in the face of a deficit, with it being a fact that if someone does not pay then eoither someone else has to or services or cut, Google is saying it will not just free ride the system, it will positivelyu seek to harm the interests of its users by doing so. So, it will seek to deny hem the state services they need. Or it will seek to increase their taxes. Or as I said to students at Imperial Colege London last night, it will seek to deny them their education, and to deny them the hope of a job because it is refusiing to pay the tax that would create the opprtunity to give them a real job when they leave education. That's what Google is saying, and doing.
Is that capitalism? Well, if it is I reject it. And I do so happily.
Because that view of capitalism is not just contemptible, it's the face of real political extremism in this world now. The biggest threat to democracy does not come from the left, or even religious fundamentalism. It comes from companies like Google and those who assist them.
And that's why I oppose Google's capitalism, if that is what it is.
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The argument about shareholders makes no sense.
Delaying a payment creates value for the shareholder even if the payment has to be made in the end. This is simple maths. If they delayed the tax payments by 1 year only, it would still create more value for the shareholders.
You could argue that corporations should pay tax on their worldwide earning the same way people have to do in the US and that it’s unreasonable to grant such right to corporations, but arguing that exercising that right doesn’t benefit shareholders is simply wrong.
Are you arguing that people with a SIPP should pay tax on their earnings every year since they will have to pay tax in the end? It’s the exact same situation. The government has granted you the right to delay taxation and you use it. Note that the government requires you to limit your ability to use the money in exchange for the beneficial tax treatment. Defined benefit pensions work on the exact same principle as well…
You clearly are clueless
Theses funds are accounted for in a way that denies access to shareholders
Their accumulation does not change that
No wonder markets fail…
Based on the argument you just made, the value of any pension pot is zero.
You are not allowed to spend the money in a pension plan until you reach pensionable age. If you are stating that any money that you cannot access immediately is worthless, then any pension plan must be worthless.
Actually any bond is worthless since you cannot get to the money right away.
That is so crass an argument all I need to say is that it is
If the funds are denied to shareholders, where are they going to? The list would seem to be: management, staff, customers, suppliers, or the tax authorities. There must be a benefit to someone of the funds being accumulated.
The purpose of this exercise is to trigger management bonuses. That is the purpose of most corporate tax abuse
The cash is being lent to governments.
It is not being invested.
Richard
this seems, to me, v interesting (yes, maybe I should get out more).
“The money hidden in Bermuda cannot be distributed to the shareholders of Google without tax being paid: Google says it will not pay that tax so these funds are beyond the shareholder’s reach. The shareholders seem not to care: they think the markets will value this unreachable cash dollar for dollar so they believe that it turns into a capital gain. But that can’t be true forever: all gains are based on income prospects. Google is in the long run denying its shareholders an income prospect. That will be valued in the end and this will reduce shareholder value. ”
To me this has worrying echoes of Enron. Are the shareholders being provided with up to date A/Cs for each Bermuda fund ?
Are the Bermuda funds listed ? if so on what ?
If Google shareholders don’t see this as a problem I’m amazed.
I think your comparison with Enron interesting
And yes, there is an offshore charade going on in these companies, and yes, it is at cost to the shareholders, again
I suppose if you reduce the concept of capitalism to, at heart, being primarily based on some form or other of exploitation, as neo liberals seem to do, and Schmidt seems to do here, then it’s an understandable defence. Personally I’m with you on this, as I suspect are many others.
On second thoughts, I should have said ‘focused on’ not ‘based on’.
Of course capitalism is focused on exploitation; it is the ownership of the means of production not by those who actually need them (to produce wealth), but by a separate class who have managed to accumulate more wealth than they need for their own consumption.
I don’t think it is hyperbole to say that companies with the same ethos as Google, the banks are “financial” terrorists.
i think your point about an attack on shareholders is a bit strange – if the shareholders dont like it then they can sell their shares, or are you suggesting they need to be protected from themselves?
Shareholders can be abused
A lot of company law is designed to prevent that abuse
If you don’t appreciate that they suffer dramatic asymmetry of information on these issues you need to get up to speed on the realities of what is happening
I have too much stuff on Blogger and YouTube to totally boycott Google, myself. However, you can easily set Yahoo! as your default search engine and miss seeing Google’s adverts. I switched a few years ago, when New Scientist reported that Google’s lawyers had asked them to stop referring to googling stuff, so they have been FWSEing things ever since. That stands for Famous Web Search Engine, so I went to using Yahoo! the FWSE. I f everybody free-rides on their services and ignores their cash-cow, they might get the message.
How can we, the majority, overcome the google threat to democracy? If we stop using Google it has no effect on Googles income. Googles income comes from advertising. If we knew which companies advertised with them and we collectively announced that we would not buy from or have dealings with these companies, these companies might stop advertising with Google. That should make Google think again, and we could continue to use their search engine. Or is that just wishful thinking.
It’s an interesting idea