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Naspers lashes out at Google

Naspers has raised a flag over its concerns that Google is not paying tax in SA.

Naspers has raised a flag over its concerns that Google is not paying tax in SA.

Local Internet giant Naspers has again hit out at Google, this time via a subsidiary accusing it – and similar companies – of not paying tax on its SA-earned ad revenue, a strategy it says is legal, but nonetheless hampers the local Internet industry.

Yet, there seems to be more behind this charge, which Google says is untrue. Naspers, which also plays in the advertising space, has launched complaints against the search giant in other countries, as there are also issues with jurisdictional rules that affect how much tax must be paid in a certain country.

At the nub of the tax issue is a lack of global uniformity around what rules apply in different jurisdictions, a situation that can result in anomalies such as double taxation, or companies not having to pay any levies at all.

Global issue

Google has come under fire for dodging the tax bullet in other countries through the use of elaborate structures that take advantage of tax breaks. It says it complies with tax laws in SA and in every other country in which it has operations.

Last September, Reuters reported Google had a UK tax bill of $55 million in 2012, on sales of $4.9 billion to British customers, and paid only 2.6% on $8.1 billion in non-US income in 2012. This was because it channelled almost all of its overseas profits to a subsidiary in Bermuda, which levies no corporate income tax, the wire service said the Internet giant's accounts show.

"Google UK, and other subsidiaries across mainland Europe, pay little tax because they are designated as providers of marketing services to Google Ireland, the Dublin-based subsidiary whose name appears on invoices to most non-US clients," reported Reuters. It has also reported that Google's strategy has come under fire in Australia.

However, a Google spokesperson says the company "complies with tax laws in South Africa and every country where we operate" and also pays over pay-as-you-earn tax as required.

Leaking money

Geoff Cohen, 24.com CEO, says Google, and companies like Apple and Facebook, legally use a well-known and understood tax loophole to avoid paying taxes in countries such as SA. He says the media corporation is the first one to raise a local flag around this issue.

Although Google's local advertising revenue figures are not available, Cohen says – based on his calculations and discussions with other media executives – the fiscus is losing around R240 million a year from Google alone.

The global tax regime has fallen behind in the digital age, says Deloitte VAT manager Anne Bardopoulos.

The global tax regime has fallen behind in the digital age, says Deloitte VAT manager Anne Bardopoulos.

However, Google notes it aids local publishers by referring users to their portals. It "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. 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 $9 billion with our AdSense partners."

24.com is a subsidiary of JSE-listed Naspers, which owns Brazilian company Buscapé, as well as Polish online auction group Allegro. The Brazilian shopping comparison site took Google to court over allegations it is a monopoly, while the Polish unit has criticised a Google deal – around displaying competitors' links – as not being beneficial to local players.

Cohen says the tax loss number could be higher when other entities such as Apple and Facebook are taken into account. He says government needs to step up and close the gap. "There is a problem; it needs to be addressed."

While local Apple distributor Core Group could not comment on Apple's tax practices, Apple CEO Tim Cook last year told the US Senate the company pays "all the taxes we owe, every single dollar". He said the group complies with all laws and their spirit and does not depend on "tax gimmicks".

"We don't move intellectual property offshore and use it to sell products back into the US to avoid US taxes. We don't stash money on some Caribbean island," said Cook.

Cohen argues, however, that SA is losing out on revenue. He says tax laws have been left behind in the digital era and leaks must be plugged. "We as SA incorporated are leaking money out."

Google clearly has a dominant position in the South African market and local digital publishers would benefit if the playing fields were levelled, making global companies abide by the same rules, price structures and economics faced by smaller local businesses, says 24.com.

"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," says Cohen.

Global issue

Anne Bardopoulos, VAT manager at Deloitte, says there have been a few rallies in the UK accusing companies like Amazon and Google of dodging paying tax.

Google is paying tax to the extent it is required to do so and is not evading tax, says Bardopoulos. She adds the group is not resident in SA, and is not obliged to contribute to the fiscus. Globally, Google's tax rate for the last financial year was 20%.

Bardopoulos says this issue goes beyond the company and is caused by different tax policies around the world and a fast-changing digital era. "Digital tax principles haven't caught up yet."

Jurisdictions need to work together to solve this impasse. She adds the Organisation for Economic Cooperation and Development is looking at e-commerce, which is growing rapidly, and the impact it has on countries' fiscuses.

However, the dilemma is that proposals have been linked to technology, and by the time they make progress, the technology is obsolete, she explains. She adds the masses often misunderstand how tax works in different jurisdictions.


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