What is google tax?

There is continuous complaints from governments that big tech companies especially MNCs are inventing new arrangements to avoid taxes. The MNCs are taking out profit from the activities in a host country, but shift it to a tax haven to escape from taxes. An important instance was Google’s non-payment of tax in the UK despite its huge revenue there. Google has made $5.6bn (£3.4bn) of revenues in the UK during 2015, but it paid corporation tax of just £20.4m.

This reduced tax payment at the source country (UK) was made possible as Google in record creates nearly all of the profits in Ireland. At the same time, the company doesn’t pay much tax in Ireland either as Ireland is gives favorable tax treatment to companies. Most of the money from UK were shifted to Google Ireland Holdings, which is a Dublin-registered company but located in Bermuda for tax purposes.

Several US technology companies, including Apple, Microsoft and Facebook, use the similar “Double Irish” structures to avoid taxes in UK.

What is google tax?

UK then introduced the Diverted Profits Tax (DPT) to tackle shifting of profits by big tech companies to tax havens. Since the law as emerged to tackle the Google type practice, the tax is nicknamed as ‘google tax’.

The diverted profits tax (DPT) was introduced in 2015. It is intended to apply to large multinational enterprises with business activities in the UK who enter into ‘contrived’ arrangements to divert profits from the UK to tax havens by avoiding a UK taxes.

The DPT as a new tax, was set at a rate of 25% of diverted profits relating to the company’s UK activity.

Later google has agreed pay $184 mn taxes in UK. But it has refused to pay the DPT as it argued that the tax is not applicable for foreign companies.

A version of google tax was introduced in India’s budget 2016

In order to tap tax on income accruing to foreign e-commerce companies from India, the budget has instructed that if that a person making payment to a nonresident, who does not have a permanent establishment, exceeding in aggregate Rs1 lakh in a year, as consideration for online advertisement, will withhold tax at 6% of gross amount paid, as Equalization levy.  But the levy will only apply to B2B transactions.