Google is once again under fire for its international tax practices. This time though, the flak isn’t coming from an international government, but South Africa’s largest online publisher.
“However, it is clearly wrong that, as we invest in building a tax-paying business employing hundreds of South Africans, we are competitively disadvantaged through aggressive tax planning strategies of global businesses.”
The publisher, which is a division of emerging markets media and internet giant Naspers, says that Google’s use of various off-shore accounts for its transactions means that it’s not paying anywhere near as much tax in the country as it should be.
This it says, means that South African publishers are simply unable to operate on a level playing field with the internet giant.
As Memeburn pointed out in mid 2013, Google pulls in around R1-billion (or US$80-million) in advertising a year in South Africa. That’s about as much as South Africa’s digital ad industry makes as a whole. Google makes this revenue with very little infrastructure development needed and with only a small satellite office of about 30 or so people.
24.com reckons that this puts lost tax revenue from Google at an estimated R140-million per annum in corporate taxes, and possibly a further R100-million in PAYE.
Google however strongly denies that this is the case, especially when it comes to PAYE, noting that it pays that tax for every employee it has in South Africa.
When Memeburn approached Google for comment on Cohen’s statement, a Google spokesperson said the company “complies with tax laws in South Africa and every country where we operate. Under current rules, VAT reporting and remittance is the responsibility of our advertisers, who pay the same rate when they advertise with Google or any other company.”
An international issue
This is not the first time Google has come under fire for its international tax policies. In late 2012, for instance, questions began to arise about how Google pays tax in the UK after it emerged that it had paid just £6-million on £2.5-billion worth of sales in the country.
It managed to do this by defining its staff and operations in a number of countries as “service arms”, using its Irish subsidiary to collect advertising revenues. This subsidiary would then funnel the funds through another subsidiary, which passes its payments to a holding company in the Netherlands with its tax base in Bermuda. This is a combination of two tax-avoidance strategies known as the “Double Irish” “Dutch Sandwich“.
In a parliamentary commission investigating the internet giant’s behaviour the following May, a UK parliamentarian called the company “devious”, “unethical” and “evil”. A former Google UK executive meanwhile alleged that the company misrepresented sales to avoid paying tax.
A number of countries have instituted special Google taxes in a bid to curb the kind of behaviour that lead to the furore in the UK.
The most recent country to institute a Google tax is Italy, which did so in December 2013.
In that country, the tax forces Italian companies to buy online advertising from locally registered companies instead of units based in tax havens such as Ireland and Bermuda. It’s worth noting however that the law has yet to be enacted.
Other countries, such as France, have issued Google with massive fines for tax non-compliance.
Getting rid of Google
24.com is in favour of applying the former approach in South Africa. Significant legislative changes will be required before South African internet businesses will be able to compete with some of their global counterparts on a level tax playing field, it says.
The state appears to be heading in that direction, as it readies legislation that will force overseas companies selling digital goods to South Africans to pay VAT on those sales.
When it comes to publishing however, 24.com’s proposal is far from the most radical. At the Tech4Africa conference last year Jason Norwoood-Young (the Media Programme Manager of non-profit initiative Code4SA) argued that publishers are effectively giving away their income to Google and that if they want to survive, they need to get rid of any presence it has on their sites.
“I personally think we have to kick Google off all of our websites and not syndicate our content on any website that runs Google ads,” he said at the time.
For its part, Google maintains that the relationship it has with publishers is a mutually beneficial one.
“Google is committed to bringing users quality content as quickly and easily as possible, which is why we partner with valued publishers around the world who choose to list themselves in Google News,” the Google spokesperson said.
“Through these relationships, we’re able to send users to news sites over 10-billion times a month from Google News and Search — each click represents a business opportunity. In 2013 we shared more than US$9-billion with our AdSense partners.”
For its part, Google doesn’t seem overly fazed by the idea of the upcoming South African tax legislation.
“We are analysing the draft regulation and will ensure that our business continues to comply with South African law if any changes come into effect,” the Google South Africa spokesperson said.
While the law may change, it’s unlikely that Google’s approach to it will. In a 2012 interview, Google Chairman Eric Schmidt said he was “proud” of the way Google had avoided paying taxes. “It’s called capitalism,” he said, “We are proudly capitalistic. I’m not confused about this.”
Given the duty big companies like Google have to their shareholders, it seems unlikely that attitude will change any time soon.