Hunting on Google: national government challenged the corporations

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Охота на Google: национальные правительства бросили вызов корпорациям

It seems that Google, like many multinationals, has come not the best times. Restrictions, prohibitions, tax claims – all rained down on us from all sides. In Europe several countries are investigated for possible financial fraud to reduce tax payments. While it is not clear what exactly pushes national governments against TNCs: the economic crisis, the policy of deoffshorization or any other reasons. However, it is obvious that large companies will have to reckon with the new conditions.

Google outlaw

This week the Federal Antimonopoly service rejected the petition Google for an extension of time of performance of the orders to eliminate violations of the Antimonopoly legislation. Moreover, the company faces serious fines for every 2 weeks of delay. Google in Russia is a long debate about antitrust laws with the “Yandex”, but in this case we are talking about apps for phones on the Android operating system. According to FAS, Google violated the law preinstall on mobile devices, native apps, Google Play store and own search engine by default.

In violation of the antitrust laws the company is accused not only in Russia. In 2015 after three years of preliminary investigation, the EU started a formal investigation. The reasons are the same as in Russia: the installation on the mobile device native apps, particularly Chrome browser and YouTube video.

The European Commission plans to test the voluntariness of prisoners with Google agreements, as well as to find out whether you violated the rules of fair competition.

 

Google representatives, however, deny the charges. “The European Commission is interested in our partnership agreements, but it is important to remember that they are voluntary, because you can use Android without Google services” – support their representatives Android.

In addition to the Antimonopoly law by Google, according to the Dutch office for the protection of information that violates a local law on the protection of personal data. In March 2012, the company introduced new rules for the use of YouTube and Gmail, with which it collected user data into a single database stored in cloud services, which led to the violation of their rights to privacy. Although the company denied the accusations, saying that users are familiar with the rules of processing of personal data, such investigations have begun in several European countries, including the UK, Germany, France, Spain and Italy.

In addition to these violations of Google over the last few years showed a tax debt worldwide.

Basic operations the company conducts through an offshore company registered in Ireland, where is located its main European office. The company manages not to pay taxes is governed by the local laws and cannot be held offshore.

So, in January of this year, the company had to pay about 130 million pounds sterlinghousecasino. That is the amount of debt, according to British authorities, had accumulated for the last decade. With revenue of under 4 billion pounds Google paid taxes in the amount of 20 million pounds.

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The British government directly stated that this is only the first step in dealing with TNCs who continually evade paying taxes. According to them, this story will be continued in the case against a number of American companies will set a precedent for Facebook, Microsoft and McDonald’s.

 

At the same time and Italian authorities have accused the Corporation of withholding income in the amount of 800 million euros in the transfer of funds to Ireland. Over the 5 years from 2008 to 2013, the company concealed from the tax authorities of the country 300 million euros.

Then in may, searches were conducted at the Paris office of Google. The event was held as part of the investigation authorities to detect possible cases of tax evasion. Previously, there was information that the government requires the company to pay the full amount of 1.6 million euros.

Finally, on 19 September, the media reported that Indonesia requires Google to compensate underpaid for the last 5 years the taxes relating to earnings for advertising. According to authorities, a portion of the proceeds was carried out in Singapore, where one of the main regional offices of the Corporation. The taxes in this country is far below the Indonesian. So, corporate tax in Indonesia is 25%, and Singapore 17%. Only for 2015 the amount of the required fees, which includes also the fines would amount to $ 418 million. The authorities estimate that last year, the Corporation must pay 76 million dollars.

Billions of dollars by the budget: TNC charges of tax evasion

Chancellor of Austria, Christian Kern recently said that “every pastry shop, every kiosk sausages pays more taxes in Austria than multinational corporations”. This applies to Starbucks, Amazon and other companies. Following this, he criticized the countries of Europe, where fiscal conditions to attract TNCs. Austrian accused Malta, Luxembourg and the Netherlands for their lack of solidarity with other EU countries.

Indeed, most TNCs operate through offshore and hide most of its profits. This, obviously, annoys the European authorities, which lose billions annually because of these schemes.

 

If before this somehow reconciled, because funds were sufficient, in the crisis of the loss of state budgets become much more sensitive. That is why large international corporations literally become the hunted.

So, in August, Apple had filed tax claims from the European Commission for a total amount of 13 billion euros. The company, like many TNCs, has worked through Ireland. Agreement with Dublin reduced the income tax to 1%, despite the fact that the standard of payment in the country is 12.5%. Of course, the company and the Irish authorities deny the violations. In particular, the EC report says:

“Although almost all of the profits, taken into account two subsidiary divisions at Apple, dealing with all sales outside of the United States, in the internal documentation was attributed to “head office”, the Commission found that such offices existed only on paper and could not generate similar profits. Those profits are assigned to “head office”, is not taxed in any other country due to special provisions of Irish tax legislation, which now cease to operate”.

 

I must say that such investigations were conducted in relation to Amazon, Starbucks and Fiat Chrysler, which the EU authorities ordered to pay 20-30 million euros. Amazon is still contesting the decision.

After the Apple “by hand” and got McDonalds, which is due to the agreement with Luxembourg was deducted for taxes of 1.49% of the profits instead of the law of 29.2%. The European Commission has estimated that the company needs to pay $ 500 million. Of course, the Luxembourg authorities and representatives of the Corporation to deny guilt, but the precedent from Apple suggests that to defend their positions is not always.

A lot of fuss about the story of coffee chain Starbucks, which for several years has meloodia from taxes in the UK and Germany, arguing that working without profit. In a tale that unprofitable business for 10 years afloat and opens a new coffeehouse, the German authorities did not believe. One of the German MEPs Sven Giegold said then that he would raise the issue of accountability of the Corporation with the authorities of Bavaria, where the main office of the German “daughter”.

UK who did not receive taxes from Starbucks since 2008, also did not stand on ceremony. In 2013, authorities ordered the company to pay 15 million pounds. Shortly before the forum in Davos, then occupying the post of Prime Minister David Cameron urged companies to start paying income taxes. Directly on Starbucks, he said, but suggested that TNCs “Wake up and smell the coffee”. According to media reports, the company works on the British market since 1998.

Revenue Starbucks during that time exceeded £ 3 billion, and payments to tax authorities was below 9 million pounds. Apart from the fact that the company declared continuous losses, it uses some tax evasion schemes.

 

For example, a tax on the use of the brand shall be paid in the countries where the lowest bid. In addition, coffee is purchased in a Swiss-registered company, and roasted in Amsterdam. So the majority of taxes paid in these countries, where the rate far below the British.

The attack began on TNCs and the US government. The budget deficit, slow economic growth and lower corporate payments have forced the United States to consider the economic damage that bring the country of the Corporation. Income tax of 35% is forcing companies to divert money offshore. This scheme actively using tech giants Microsoft, Apple and Hewlett-Packard. So American multinational corporations, according to the Senate investigation, 1.7 trillion dollars of retained earnings, and therefore the authorities were not counted an impressive tax deductions.

It is unclear how American officials will struggle with this problem, but corporations are not going to pay that kind of money. Apple CEO Tim cook said that the company has paid all the required taxes, and to return their profits in the US with such extortionate taxation, they are not going.

In addition, the internal revenue Service, the United States filed a tax claim to Coca-Cola in the amount of 3.3 billion dollars after an audit of the company’s activities in 2007-2009 only the representatives of the company to actively challenge these claims in the tax court.

Experts explain that the fight against tax evasion is part of the war with offshore companies that began with the financial crisis of 2008. So, the chief of Department of market analysis of a DB “Opening”Konstantin Bushuev asserts:

Seeing inflated capitalization and profitability of such giants as Google and Apple, US lawmakers are interested in how these giants can still greatly underpay taxes.

 

But besides that, there are several reasons for this active struggle of the States against the multinationals.


States vs corporations: who?

The issues of limitation of corporations and their subordination to the interests of the States in the last three years become a key topic of discussion. In 2014, following the meeting of heads of ministries of Finance and Central Bank of the G20 countries was released a document which stated that the government will make every effort to close all tax loopholes for multinationals. In the outcome document says:


“We are preparing a global response to the threat of base erosion and withdrawal of profits, based on sound principles of taxation. Profits should be taxed in the jurisdiction where it was formed.

 

The only problem is that while all these schemes are perfectly legal. Experts say that in the fight against TNCs, the States could face several problems. The first difficulty is the work of corporations in several countries, leading to situations where she has to pay taxes on the same transactions in multiple governments.

Tatiana Malinina, head of the laboratory of tax policy Department of the Gaidar Institute says:

The current lack of regulation may be unjust not only from the point of view of countries that receive less revenue in the budget, but also from the point of view of the company. For example, when Google works in several countries, all or some of these countries seek to tax the same income. Because the current tax legislation in different countries can be conflicting.

The second difficulty lies in the fact that TNCs are really impressive player in the global economy, and policy. According to Swiss scientists, 40% of the world’s money is in control of only 147 companies. The assets of these firms are closely intertwined, so conspiracy theories about the “conspiracy of the corporations” have a reasonable basis.

The ex-Minister of agriculture of Russia Elena Skrynnik, stressing that businesses have to adapt to the conditions dictated by TNCs, explains:

You can not talk about the plot of corporations, and that they in those countries where there are, dictate the rules in building space, consumption standards and certain rules of behavior, because the number of such institutions becoming places where the rest of the family, or going students, speaking about cafes and restaurants.

 

Moreover, many analysts are inclined to see the causes of the current problems in the politics of States themselves, which until recently did not think about the impact of TNCs. Some experts believe that there is nothing surprising in the desire of companies to save on taxes.

So, partner, Goltsblat BLP Evgeny Timofeyev says:

If you broke the law, then show what. But if not broken, then you need to put the question differently: why are you not able to create laws that would have obliged to pay in such situations? So no need to blame on others. The lack of the necessary rules is still the problem of the state, not the taxpayer.

 

Obviously, the state fully realized it, so across Europe began prosecution of international corporations. A number of us senators offers to take advantage of this and even more to raise taxes to get what is owed to the giants during the years of wandering in the offshore.

Elizabeth Warren Senator of the Democratic party from Massachusetts says:

 

Having tasted bitter pill corporations and their lobbyists in Washington insist that Congress danced to their tune at home. But instead of indulging in tax evaders under the guise of tax reform, Congress should take a moment and take three important steps to restore the rotten tax system.

Thus, the national oriented forces in different countries challenge the globalization of TNCs. Of course, the main reason for this – lack of finances and attempt to pull them out through taxes. However, it is likely that in some countries there is a growing dissatisfaction with the interference of corporations in the internal Affairs of the state. And this is, perhaps, another more serious factor that intensifies the struggle.

Author: Anna Garde

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