The Google Tax and Political Contortionism

The politicisation of tax is a particular bugbear of mine. It’s no easy task balancing the competing demands of fostering growth, funding critical public services and guarding against the rapacity of those unwilling to focus on anything beyond their post-tax return. And yet politicians – and lobbyists – of all hues seem willing to topple this hard struck balance for ideological gain. As though it, none of it, really matters.

A good recent example that rightly enraged the left was the Tories’ abuse of an excellent idea – the enhancing of public understanding of Government finances – for a ideological push of Battleship Potemkin proportions. I speak, for those struggling with a seasonal hangover, of personal tax statements.

But tax is, apparently and uniquely, an arena in which John 8:7 (the one about the sinners and the stones) doesn’t apply.

In the Autumn Statement, the Tories took a bold step. Recognising the overwhelming moral – and business – case for ensuring domestic businesses could play on a level field with their multi-national competitors, George Osborne announced a “diverted profits tax”.


Now is not the moment to speculate on how the government will achieve this, a measure which stands to raise around £350m per annum. There will be time for that next week, when the detail is announced. But what we can, safely, say now is that it is a radical measure; not hitherto seriously contemplated as even possible; and one which meets an overwhelming moral and business need.

Now look, and see, the politics.

There’s a cosy narrative on the left around tax avoidance: that avoidance is something the Tories tacitly encourage and that Labour, armed only with the simple sword of fairness and the trusty shield of moral authority, will end once and for all. Like most defining political narratives, routinely repeated at festive seasons to a congregation of the party faithful, its association with the truth is purely coincidental.

But this narrative, although it might bind together the faithful, also has consequences. It causes us collectively to close our minds to the technical difficulty involved in making good tax policy. It makes us less effective in Opposition (on which more to follow on Monday) and – which matters more – it makes us less effective in Government.

Those who work in tax and in the media know this to be true. They know it. And they know its damaging consequences. And yet they burnish the narrative. Because, of the twin sins of acknowledging the left might have something to learn on tax and of being economical with the truth, it is the first sin that they hold to be the greater.

Rather than acknowledge that the Google Tax might – depending on the detail, might – meet the compelling commercial and moral case identified above; rather than commend the ambition to tackle an issue dear to the public’s heart; rather than recognise that the BEPS project (on even the most optimistic view) is both years off and imperfect; rather even than waiting for the detail, we eagerly commit the latter sin for fear that our silence will be mistaken for the former.

Let me point some fingers:

  • The Tax Justice Network, which has long campaigned for multinationals to be brought fiscally to book, asks only whether the diverted profits tax is ‘Jumping the Gun’?
  • The Guardian which retains, fool that I am, a seemingly endless capacity to disappoint on tax, asserts (quite preposterously) that the diverted profits tax “doesn’t add up to a radical reform”
  • Even Richard Murphy, a man in whose energy and courage there is inspiration to be found, and who has long campaigned for multinationals to pay their share, has found himself unable, quite, to welcome the concept of this radical step.

To you I say, the public expects better.


Richard Murphy, a man who will not suffer a nut to go uncracked, has written at length about this blog post here. There’s some interesting debate in the comments section with such luminaries as Howard Reed and Michael O’Connor. It’s in the comments section that Richard states what he says is his real objection:


That we should not act for fear of undermining or pre-empting the BEPS project is a surprising statement given that (as Richard has asserted elsewhere):


None of this, I have to say, causes me to revise the view I expressed originally that the reason the left-leaning fiscal commentariat had turned against the diverted profits tax (which will yield £350m per annum – not as Richard and others have incorrectly asserted £200m) was less to do with the technical detail of the tax and more to do with the political hue of the person who proposed it.  My own position remains as stated above – I’d like to see the detail but, in principle, it looks bold, radical and is to be commended.

21 thoughts on “The Google Tax and Political Contortionism

  1. To me it doesn’t seem so much a case of economising on the truth rather than admitting fallibility, it seems more like simply being wary of Greeks bearing gifts.

    That is, if Osborne is proposing something, it must be flawed. It doesn’t really matter whether the flaw is in the design, the implementation or the intention, or whether you can yet see what the flaw is: there must be one, so the proposal should be rejected. See the response to Murphy’s tweet, for example.

    Or, put another way, an equivalent of your first sin is to acknowledge that the right has anything good to say on tax.

    I have a vague recollection from my history classes that government and opposition used to work together on some matters. I think knee-jerk dismissal of the other side’s proposals tends to increase public disillusionment with politics (I know it has that effect on me), and I wish people would wait until they know *why* they’re disagreeing before they do so – and possibly even decide not to 🙂

  2. Thanks Andrew. Your analyse may well be more acute. But substantively we seem to agree

  3. I’ve just seen your tweet about the left preferring to be rude about the Tories than acknowledge that they might have anything good to say, which rather makes my comment redundant 😦

    But it does suggest that we agree, yes 🙂

  4. We do.

  5. Excellent piece – exemplary indeed. Thanks for drawing it to my attention.

  6. In the interests of balance, I also think that many Tories would rather be rude about Labour than acknowledge that they have anything good to say, too 🙂

  7. Thanks for an interesting piece Jolyon. I appreciate the sentiment (think fairly about tax policy) but don’t really buy the argument. Let me explain why, and then have a go at doing what you ask.

    You say: “of the twin sins of acknowledging the left might have something to learn on tax and of being economical with the truth, it is the first sin that they hold to be the greater.”

    That may be true of those you point the finger at, or it may not; but I don’t think you’ve made an argument that it is. Such an argument would require here the view that the benefit of the doubt should have been given to a policy announced on the fly, with no supporting detail of any kind provided by any forum (even off the record briefing, as far as I can see), by a politician making a heavily election-focused statement, and who has a history of – as the IFS put it – ‘bad habits’ in regard to tax policy:

    The detail will be scrutinised when it has been prepared and is made public; but requiring a completely open mind at this stage and in this context may be asking for more than fairness. (Think Andrew’s Greek gifts idea, turned up to 11 to allow for the Chancellor’s previous form.)

    Trying to think fairly about this myself: first on the scale. If we take the 25% and GBP350m figures, this implies a base of GBP1.4bn of ‘diverted’ profits. On the one hand, that seems commendably cautious: it’s an annual total equivalent to about 1.4% of UK corporate profits in the most recent quarter, for example.

    On the other hand, in that light it seems rather unambitious (or alternatively, rather optimistic about the actual extent of ‘diversion’). For example, Reuters calculated that the 2013 ‘shifting’ of UK profit by Google may reduce the UK tax bill by more than GBP 200m – so the return of GBP 350m (forecast from the third year only, after smaller amounts next year and 2016) is perhaps less than two Googles’ worth.

    The basis of the new tax might, however, be truly radical (note that this is entirely speculative, in the absence of any published detail). This could be true in two, not mutually exclusive ways.
    1. Introduction of an explicit formulary apportionment aspect to the UK’s tax rules, based not on the ALP but rather the stated intention of BEPS to improve the alignment of profits with the location of economic activity.
    2. A break with the BEPS process, which the UK played an important role in ushering into existence, even before most of its outputs have been delivered (never mind being enacted and measured).

    Alternatively, the new tax may not be based on the location of economic activity (although it’s hard to see how it could be based on ALP); and/or may reflect something that the UK government will attempt to bring through BEPS as a broadly accepted change to international rules. Incidentally, the HMRC document puts the new tax as the first of three bullets under the heading of BEPS. Intriguinger and intriguinger.

    Sol Picciotto’s take (as published by TJN and linked by you above) goes into this in a bit more detail – and doesn’t in fact write the new tax off as ‘jumping the gun’ (there is much more to the analysis than the headline – perhaps you weren’t entirely fair there yourself?).

    I don’t know if you’ll think this reflection is fair, so perhaps I can turn the question back to you, Jolyon: what do you think a fair analysis would be of the skeletal detail currently available? What is the ‘better’ treatment that the public expects? [Just to close a possible loophole: I don’t think the public expects to wait until the 10th to have *any* view expressed.]

  8. Hi Alex,

    Thanks, as always. A few points in reply:

    (1) although you badge it as “announced on the fly”, this is to ignore both the fact that the announcement was foreshadowed in September and the further fact that detailed yield figures were announced in the Budget suggesting it has been heavily worked up already;

    (2) you express your antipathy for Osborne and Tory tax policy. I am a member of the Labour Party and the “financial chicanery” (as I put it) involved in the accounting of yield from the changes to the taxation of pensions and accelerated payments notices is something I have devoted at least three full blog posts too. I am not unaware of it. However, to assume that because Osborne has done some things that are ‘bad’ all that he does must also be ‘bad’ is to ignore the reality that the Tories have an enviable record – relative at least to Labour – in tackling tax avoidance. I regard that as indisputable fact: the GAAR, APNs, Follower Notices, High Risk Promoters, extensions to DOTAS (I could go on. And on) all evidence not merely a commitment to tackling the problem – but the technical facility to do so too. As you once memorably told me, when I was rude about The Murph, “play the ball”;

    (3) to criticise, as you do, the DVT because it won’t (in effect) ‘solve’ the problem of multi-national tax avoidance is not an argument that is worthy of you. I will confine myself to saying that exactly the same criticism could be made of substantially every legislative solution ever adopted for any problem;

    (4) it is absolutely right that, as you point out, Prof Picciotto’s analysis is more nuanced than the headline suggests. But that headline was chosen by TJN and it was at TJN that I pointed my finger;

    (5) you, again rightly, observe that one cannot expect the analysis to be stalled until the detail is announced. To which I would observe in response, again, where is the cautious welcome – pending the detail – from the left for the ambition of an undoubtedly radical measure to tackle a problem that you, and others, have long campaigned for? Where is it?

    (6) finally, you come close to suggesting that it is an error to pre-empt the BEPS project. However, as I understand your position on BEPS (expressed elsewhere), it is that there are doubts about the likely efficacy of that project. Are you really saying, at the same time, that one must do nothing in the meantime? Even though BEPS will deliver a solution that – at best – is incomplete and late?


  9. Are we having a proper disagreement? Dear me! I fear you’re putting a lot of words in my mouth though, so there may not be that much disagreement underneath.

    1. ‘On the fly’ – not terribly important, but what I mean is that there has been no consultation or trailing of any specifics: the policy has been announced and still no-one knows what it is. We could probably agree on alternative language but the main thing is we agree (do we?) that as far as can be discerned, this wasn’t previously discussed/consulted etc with any expert stakeholders.

    2. No – I expressed no particular antipathy towards Osborne, and certainly none towards ‘Tory tax policy’ (although such may exist), I simply pointed out the context of the statement: “a politician making a heavily election-focused statement, and who has a history of – as the IFS put it – ‘bad habits’ in regard to tax policy”. I also did not say that it follows that any proposal should be treated as ‘bad’. Rather, it is material to the size of the benefit of the doubt that someone with such a record making an unsupported policy statement in that context could expect to receive. I can’t imagine you disagree with this either.

    In terms of playing the ball: if the ball was present, or at least within sight, we could and should play it. Absent such, we are required to make either no judgement or a balance of probability judgement which is necessarily influenced by our views of the player and the match situation. This is not equivalent to my being passingly rude about someone as an alternative to dealing with their substantive policy position (not, I hope, that I have ever suggested that of you) – there is no policy position here.

    3. No again – I didn’t criticise the new tax on the basis that it wouldn’t solve the whole problem. I don’t know where you get that from. (Unless perhaps it comes from my suggestion that the scale is unambitious? Which is bracketed with the suggestion that it’s commendably cautious, and followed by the argument that it is the basis of a new approach, rather than scale of the measure, which may be radical. This simply isn’t a criticism that the new tax wouldn’t solve the whole thing, however you read it.)

    4. I didn’t read it as criticism of the headline and not the post, but maybe that’s just me. You might perhaps read it back and see if you think it conveys your point well.

    5. “where is the cautious welcome of an undoubtedly radical measure to tackle a problem that you, and others, have long campaigned for? Where is it?”

    Hmm. Two points on this. First, I don’t think the measure is, yet, undoubtedly radical. It may be, but as I tried to say, this would be on the basis of its approach rather than its scale; and as we don’t yet know the approach, it is (by my definition) too early to call it radical.

    Do you mean that any corporate tax focused on the problem of profit diversion is by definition radical? Perhaps. But one could argue that sales taxes are such a response, for example, or specific tweaks to thin cap or transfer pricing in BEPS, where ‘radical’ is not necessarily the word that springs to mind.

    And second, I’m not sure that my comment or Sol’s post, for example, doesn’t in fact read as a cautious welcome. Or indeed Richard’s, where he speculates on how the new policy could be ‘revolutionary’.

    6. Finally, I’m also not sure that I “come close to suggesting that it is an error to pre-empt the BEPS project”. What I meant, in any event, was to suggest that it would be radical, in the sense of a rapid and substantial reversal of position, were this government to do so in such a way; but that at least some of the framing suggests that the intent is, in fact, to work within the BEPS approach (possibly by shifting the latter to encompass something more radical by dint of being counter-ALP).

    My own view is this: I have enough concerns about BEPS to think that a bit of radical pre-emption might be no bad thing. I hadn’t really thought that a government so closely involved in the architecture of BEPS might do it, but if the new tax is based on the BEPS aim rather than the OECD approach (and yes, these are quite different) then it could be great. And indeed radical – per my original bullet #1 above.

  10. Thanks Alex, again. I think I’m happy to leave it there and let others decide. Have a great weekend!

  11. You too! Roll on the actual policy being published so we can move this from the largely hypothetical…

  12. I agree that the debate about the taxation of multinationals is invariably – and no doubt inevitable – driven by commentators political viewpoints. Broadly speaking, the right like low taxation and tax competition whilst the left like higher taxation and tax harmonisation. The proposed diverted profits tax is likely to satisfy neither and will certainly dismay those that call for tax simplification (for whatever motive!). As you know, I think that corporation tax is simply not fixable for MNCs as where profits are generated in an increasingly global/digital world is too difficult to determine on a transparent and verifiable basis. Accordingly, in my view, neither BEPS nor DPT will ‘do the job’ but there is, of course, lots of money to be made by advisers in the meantime by writing reports about the impact of both.
    Contrast the above with the (now low profile and, indeed, almost forgotten) introduction of the UK-REIT regime for listed UK property investment companies. Is less tax collected by the Exchequer? Almost certainly not. Is the regime simpler? Clearly so even if not perfectly so. Why is it not politically controversial? Not really sure as, despite owning up to being a former tax advisor to the real estate sector, I would not argue that other sectors deserve such a treatment less. Why are more advisers and lobbyists not calling for a global examination of moving the tax liability from the corporations to the investors? Not sure but, hopefully. its not merely due to the capitalised value of future tax advisory fees lost.
    For the reasons stated above, I have more sympathy than you for the ‘wait to see the details’ position on DPT knowing that this will horrify some of them but similarly believing that the details when announced will satisfy none of them..

  13. For balance I think fingers can be pointed at certain commentators on the Right who seem barely able to acknowledge the need for a tax base at all.
    You are right, this is at its heart a technical subject. Whilst it cannot and should not be divorced from politics and – whisper it – personal morality, the crunchy economic analysis shouldn’t be, but very often is, simply ignored in the rush to prove one’s political purity.
    My biggest personal gripe, however, is with the acid-trip economic theory that does not regard tax as a revenue as such for government spending. Modern Monetary Theorists cannot in my view be engaged with. I do not mean of course they should be silenced, I mean they cannot be reasoned with. This school of thought is growing on the British Left and presents a real problem to Labour.

  14. Thanks. An entirely fair point to observe that I unfairly pick on the left. I do. There is something (query unhelpful) in my makeup that is more frustrated by the disinclination of my lot to do better than the fact that the others are (wrongly) how they are.

  15. Actually I don’t think you’re being unfair on the Left. It is simply a fact that the Tories have done more on anti – avoidance than Labour managed. It may be that governments will use their political capital. So Labour can introduce private ‘partners’ (no personal opinion offered) into the NHS more easily than a Conservative government. The flip side is the Tories can attack multinational tax avoidance because they’re obviously on the side of Big business, right?

  16. Pingback: Tax Research UK » Tax debate is all about politics and principles: the Google tax is likely to fail on both counts

  17. Here are some thoughts I came across on what form the ‘Google tax’ might take. Who knows, but it’s all interesting stuff.

    “Given the media attention and parliamentary focus on the ‘Double Irish’ and ‘Dutch Sandwich’ structures the rules could well be based upon countering this type of planning, i.e., where a principal/hub company receives sales income and then pays a substantial royalty to a ‘haven’. There are many options for taxing these profits but two that spring to mind are a profit shifting rule similar to the German rules or new form of PE rule. Given treaty and EU considerations one would suspect that they will look to raise the tax on the receipts of the haven entity that originated from the UK. Without having detail on the form of the tax and the mechanism for its calculation it is difficult to speculate on how it may be collected.

    To deal with discrimination issues of having a rate higher than the UK corporate tax rate, this will likely be a new form of tax. Consequently, it will be necessary to analyze whether it would be a creditable tax.”

  18. Ironman (above) is right that this government has introduced more anti-avoidance measures in 5 years than the last Labour Government managed in 13.

    But I suspect that has as much to do with the economic climate as anything else. No-one was much bothered with bankers’ bonuses and tax avoidance schemes when the finance industry was contributing billions in tax anyway and allowing us to wallow in the never ending prosperity that the ‘end of boom and bust’ promised us.

    it’s why the ‘moral’ argument has always annoyed me. Did the use of an off-shore EBT only become ‘immoral’ after 2010 and before them it was acceptable?

  19. Have been asked to write something on the relationship between morality and taxation and will ensure that it appears here too.

  20. Jolyon

    (Not necessarily for posting) For the record, I do not comment on your blog because I “like hegemony”. I comment because I appreciate your enjoyment of discussion…and you tolerate my enjoyment of an argument.

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