Why so many now say that taxes paid by US tech firms are 'not acceptable'

On Thursday, a Parliamentary hearing about a deal struck by Google and Britain's tax authority to repay a decade's worth of back taxes turned into a skewering of Google executives. While debates on tech firms tax practices has been long-running in the US, they appear to have bubbled over in Europe.

Image from video / PA via AP
In this image made from video, Google Vice President Tom Hutchinson, left, and President of Google Europe, Middle East and Africa, Matt Brittin, testify before the British Commons' Public Accounts Committee in London, Thursday Feb. 11, 2016. Internationally, pressure appears to be mounting on American tech firms to change how they pay corporate taxes on overseas profits.

In the wake of Google’s recent settlement with British tax authorities to pay $185 million in back taxes, pressure appears to be mounting on American tech firms that do business overseas.

The companies — particularly Apple and Google, which reorganized last year as holding company Alphabet — have long faced questions about whether they were engaged in complex schemes (such as the one known fancifully as the Double Irish) to avoid paying taxes on their international profits.

In the US, lawmakers in 2013 accused Apple of avoiding paying taxes on at least $74 billion in sales over three years by moving the company’s intellectual property overseas. Both companies have repeatedly said they are not breaking any laws and pushed to revamp the US tax code.

But on Thursday, anger at the companies appeared to bubble over during a parliamentary committee hearing over a simple question posed to Matt Brittin, the president of Google’s European arm: how much do you get paid?

“I’ll happily disclose that if it’s a relevant matter for the committee,” he said in response to a question from Meg Hillier, chair of the Public Accounts Committee.

Ms. Hillier again demanded to know his pay, prompting Mr. Brittin to say he didn’t know the figure but could later disclose it to the MPs “privately.”

“You don’t know what you get paid, Mr. Brittin?” she responded, to laughter in the hearing room.

She had asked the Google head if he understood the anger that Britons felt about the deal, which has raised a debate about multinational companies that operate in the country but have their tax bases elsewhere.

Google now has more than 4,000 workers in Britain, up from 160 a decade ago, he told the lawmakers, with more than 5,000 based in Ireland, where many multinational tech firms have made their tax bases, drawn by its low corporate tax rate.

“Out there, our constituents are very angry,” Hillier continued. “They live in a different world, clearly, to the world you live in, if you can’t even tell us what you are actually paid. I wonder if you’ve got tin ears. You went out there publicly to parade this tax deal.”

“Total political crap”

Despite serious questions about Apple’s tax practices in the US, chief executive Tim Cook’s testimony before the Senate in 2013 proved to be far less contentious.

Many critics had pointed to the company’s use of a maneuver called the Double Irish, which involves setting up one tax headquarters in Ireland that collects a company’s profits and then routes it through a second entity headquartered elsewhere with lower tax rates, such as Bermuda, which has no corporate taxes.

While former Sen. Carl Levin had characterized the company’s creation of what could be considered stateless entities that paid no taxes on parts of the company’s profits as “the Holy Grail of tax avoidance,” other lawmakers seemed wowed by Mr. Cook’s celebrity and charmed by his soft-spoken manners. He reportedly addressed many of his questioners as “sir,” according to Bloomberg.

“Over the next three hours, Cook spun a tale worthy of Mark Twain and emerged not only intact but unscathed,” wrote Bloomberg’s Joshua Green of the hearing before the Senate’s Permanent Subcommittee on Investigations. "No one laid a glove on him."

Cook also seemed to successfully reframe the hearing as a larger discussion about the US tax code, noting that Apple did not violate any laws. He has maintained that stance since, though a different side of the Apple head seemed to emerge in December 2015, when Cook dismissed the Senate committee’s findings as “total political crap,” in a 60 Minutes interview with Charlie Rose.

“Apple pays every tax dollar we owe,” he added, telling the host, “This is a tax code, Charlie, that was made for the industrial age, not the digital age, it’s backwards.... It should have been fixed years ago.”

His dismissal of questions over the company’s tax practices doesn’t seem to have ruffled many feathers among the company’s passionate fanbase.

“That's like saying I am avoiding taxes by not dying. As long as Apple leaves their earnings overseas, they don't owe the government anything on those earnings,” wrote a commenter on the Apple-focused site MacRumors just after a clip of the interview was released. “Not bringing those earnings into the US economy is not tax avoidance.”

International debates

Outside the US, the debate has prompted some changes. Ireland outlawed the use of the Double Irish in 2014. Michael Noonan, the Irish finance minister, told the Los Angeles Times that he was “abolishing the ability of companies to use the Double Irish,” by requiring all companies registered in Ireland to pay taxes there. The maneuver is now banned for all new companies, with existing companies that use it required to phase it out by 2020.

Last fall, however, lawmakers unveiled a new “innovation box” that would let companies pay a greatly reduced tax rate of 6.25 percent on profits from patents and other intellectual property, a proposal that’s also been discussed in the US.

In Britain, Google’s deal to settle a long-running investigation into its tax practices — which also requires the tech giant to bear a larger tax burden in the future — has divided lawmakers.

George Osborne, the Chancellor of the Exchequer, described it as a “victory” for the government’s policies after a long-running investigation, while John McDonnell, the Labor Party’s shadow chancellor, described it as a “sweetheart deal” for a “relatively trivial amount of money” that deserved further scrutiny.

Companies in the UK currently pay corporate taxes of 20 percent. But in 2014, Facebook paid £4,327 in corporate taxes despite reporting revenues of £105 million.

German Klimenko, Russia’s recently-appointed Internet czar, has been pushing for a tax increase on US companies, saying that could help Russian competitors such as the search engine Yandex and Mail.ru.

“We are breeding the cow and they are milking it,” he told Bloomberg News, referring to American tech firms. One lawmaker is sponsoring a bill to add an 18 percent value-added tax to as much as 300 billion rubles ($3.9 billion) earned by foreign companies each year.

French authorities have lodged a $1.1 billion claim against Google, with François Hollande, the prime minister, lobbying President Obama to rein in the tax practices, which he called “not acceptable.”

Perhaps anticipating the bruising he would take in Parliament, Brittin, the European Google head, argued in a column in the Telegraph on Wednesday that the company had been “fully transparent” with the UK’s tax authority in its six-year investigation.

“We agree that the international tax system needs reform. We have long been in favour of simpler, clearer rules, because it is important not only to pay the right amount of tax, but to be seen to be paying the right amount,” he wrote. “But changes to the tax system are not Google’s call. Reform must come from governments, not from the companies who are subject to their rules.”

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