Naspers company attacks Google over international tax practices

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Google don't be evil

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.

In a statement issued to the press 24.com CEO Geoff Cohen said: “In the digital age, we accept that we compete with businesses from all over the world.

“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.

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  • reactance

    Who cares, Naspers is a apartheid based company which still practices up till today core segregation within the company (with their BEE facade) , I hope Google starts penetrating the South African digital market and crush them!

  • Adriaan Grové

    sounds like sour grapes because they can’t compete with Google’s business model or advertising business?

    Thanks for basically supporting the new digital tax bill naspers :(

  • Kyle Younge

    @reactance:disqus Please give light to your sources, if you have any.
    Anyway this has nothing to do with Naspers, MIH or the local cave you obviously crawled out of. @adriaangrov:disqus This is about a massive economic drain on our country. It has an effect on all our national companies. And that Tax belongs to us the people of South Africa.

  • John Book

    Dude, you have clearly not read a single yearly Naspers report. They, and especially Media24 do more for ploughing back into the community than the average South African company. Your hateful response has no place in our country.

  • reactance

    in the land of the blind the one-eyed man is king, yet here majority we have two.

    Both @John Book and @Kyle Younge (and others following this tone)are miss informed “lazy minded individuals” mostly in denial. based on your response I doubt any formal evidence will shift your perceptions. To those who do care and have some sense of basic consciousness and passed this level of denial please go here.

    Do some research on this guy and see the light.
    http://medialternatives.com/about/

    Then read this.
    http://medialternatives.com/2011/11/15/media-inc-the-story-of-naspers-media24-and-channel-life/

    Next go

    http://www.youtube.com/watch?v=nAMzUfN3-rI

    Hopefully I activated someone’s mind.

  • Paul John Gioio

    Naspers is just being sour about how well Google is doing. Did you give any thought to the free services you use on a daily basis which someone had to pay to develop like maps, gmail, calendar, search (relevant) AdSense, Adwords, Chrome, ANDROID, Moonshots, Google Glass, Internet ballons over africa, white sprectrum internet trials bringing connectivity to the poor and schools at a lower cost, self driving cars that could save peoples lives, etc. What are you doing? Lol! Dstv at R760 per month?

  • Jono

    This is a little hypocritical coming from Naspers. Someone should go back and have a look at Naspers’s current and past tax planning, I am quite sure that they have used every possible opportunity to plan their tax positions both locally and in foreign countries to ensure that they pay the lowest possible tax rates in the countries that they operate, is this unfair or just the way of the world? They use their dominant position in media (Dstv) which has a license obtained from government to further their various monopolistic and attempted monopolistic positions in the market…… It would be interesting to understand just how much free media is given to Naspers’s various internet properties on Dstv to compete with its internet competitors using a government issued license, surely this cannot be fair? People in glass houses should be careful of throwing stones, Mr. Cohen……

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  • http://nathanjeffery.co.za/ Nathan Jeffery

    If Google are clever and smart enough to structure their business in a way that they pay less tax – good on them.

    Everyone hates tax and would avoid it if they knew of legal ways to do so.

    Instead of complaining about what Google is doing well, people should go and do research and then do it themselves, or come up with better business models.

  • Karel Nielson

    @Kyle Younge, ” And that Tax belongs to us the people of South Africa.” I might have considered agreeing with that statement if our tax money was actually spent on improving or even just maintaining the services etc. that it is actually meant for. Unfortunately, it appears as if politicians here aren’t even bothering to go to the trouble of abusing their influence / authority by awarding lucrative contracts to companies that are run by friends and / or family. While this type of practice is deplorable, at least said companies do at the very least usually do what they are being paid to, even if it is sometimes done poorly. But when I see massive amounts of Tax money being spent on luxury cars and absurdly expensive private residences, then I completely fail to see how, “we, the people of South Africa” are benefitting. As for the money being “drained from our economy” idea, I prefer to keep in mind that while Google are maximising the amount of profit that they earn, they don’t break any laws to achieve this. And while I’m not saying that local companies aren’t capable of delivering the service in question, (advertising) I will say that in my humble opinion, Google IS online advertising. In fact, without Google, sincerely believe that the Internet would not have grown nearly as fast as it has. Without Google, the revenues generated by online advertising would not be a fraction of what it is now. Personally, I am not fond of being bombarded with any form of unsolicited marketing. The only reason why I tolerate online ads etc. at all is because I understand that Google wouldn’t have had the funds needed to develop, improve or maintain the plethora of free services and products that they currently do if it weren’t for all those annoying advertising people and their money.

  • Adriaan Grové

    it is about google supplying a superior product. If naspers/media24 can offer something better…even at a higher price I would consider them.
    “..I personally think we have to kick Google off all of our websites..” – maybe they should start with their own sites since news24.com happily runs Google ads. They don’t have anything that can compete with google. Our government is wasting tax money anyway, so I don’t see the point in giving them more.

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