People just still aren't getting it about Google's taxes

There are any number of people saying things akin to this about Google's tax affairs. And sadly all of them are exactly and precisely wrong:

But Jeremy Corbyn said experts thought it amounted to an effective rate of about 3%, in contrast to rates of corporation tax of above 20% over the last decade.

The Labour leader pointed out that most people did not have the luxury of personal meetings to discuss their tax affairs. “Millions of people are this week filling in their tax returns to get them in by 31 January,” he said. “They have to send the form back. They do not get the option of 25 meetings with 17 ministers to decide what their rate of tax is.

“Many people going to their HMRC offices or returning the [form] online this week will say this: ‘Why is there one rule for big multinational companies and another for ordinary small businesses and self-employed workers?’”

About lobbying: well, what does anyone expect will happen? The more arbitrary and political the treatment of a company is the more lobbying will be done to influence the politics. But the thing which is exactly wrong is this idea that Google is exploiting some set of rules available only to large and or multinational companies. That is precisely wrong: completely the opposite of reality.

What it is actually doing is saying that it sells its advertising into the UK from Ireland. The tax treatment of those advertising sales is thus up to the Irish taxman, not the UK. Maybe it shouldn't be this way, maybe it should, but that is the way that it is. And under the usual treaties (OECD standard ones, and also current EU law) that really is the way it is.

So, why is it this way?

Because international tax law accepts that we would like to have small companies taking part in international trade and also that it's possible for the demands of the tax authorities to be too high to allow them to do so. A UK company which makes the occasional sale in Germany say: or India. Do we think that they should then file a German, or Indian, tax return? Try to pull out the profit that was made on perhaps 0.5% of their turnover just for that one tax authority? Prepare accounts according to the standards of every country they ever ship a package to?

No, obviously, we do not insist upon that. It's as plain as the idiocy on a tax campaigners' face that we're not going to insist upon that: not if we're to allow small companies to take part in international trade.

So, how do we organise it? We have a definition of when a company is "really" in a particular taxing jurisdiction. Essentially, when there is a "permanent establishment". No, don't worry how that is defined: just accept that there's going to be some cut off point. You're a big company with a big presence, cough up locally. You're a flea bite on the economy? This economy is trivial to you as a company? Well, why not just account for profits and pay taxes at home then?

Note again: we do not insist that the current rules are right. Only that there is always going to be some approximation to this system in any international taxation system. We simply are not going to insist upon a German tax return for the two man UK company that ships a model train steam boiler to one customer in Germany. And thus we must have a distinction.

What is it that Google is doing? They are claiming that their Irish Google, the one that sells all the advertising, is in fact an Irish company with no such permanent establishment in the UK. Is this thus special rules for multinationals, for large companies?

No, obviously it isn't. This is a tax simplification set up for small companies. And Google is claiming it by claiming to be a small company. This is a tax simplification available to absolutely every Irish company that sells into the UK. It's one that applies to every French one selling into the UK, to German ones selling into Romania and to all UK companies selling everywhere. As long as you don't have a permanent establishment where you are selling then you pay your tax at home.

Whether it should be this way is another matter. But we really do think it's important to point out that Google is not exploiting some loophole only available to large companies. It's actually using one that was designed for small companies and applies to all small companies. And it's also one that just about every company that does any international trade at all uses at some point or another. Even the largest global exporter does not have a permanent establishment in every tax jurisdiction. Finally, the tax system just wouldn't work at all, not and allow small companies to conduct international trade, if something like this were not in place.

Exploitation? Loopholes? Abuse? Unfair? Could be any of those things according to your own opinion. But let's get it right about which loophole is being exploited to produce possibly unfair abuse. Unlike, you know, all the tax justice campaigners. This is a small company exemption, not a large company one.