A lot of focus in the UK has been on the question of whether Google is doing something artificial and abusive by “booking” revenues from UK-based advertisers in Ireland, rather than in the UK (the so called ‘permanent establishment’ question). This seems to me to be a red herring.

Many people have become convinced that the fact that Google ‘books’ sales of adverts across Europe in one place rather than individually in every country where it has a marketing operation is a move to avoid taxes in the those countries.

Richard Murphy, for example argues that Google’s UK revenues are the result of “British ads sold by British sales people aimed at British customers on a UK website that get value by clicks on British computers.” Seema Malhotra, Labour’s Shadow Chief Secretary to the Treasury, in a letter to the NAO says that Google UK ‘provides advertising for UK businesses on a website that is explicitly UK-focused and that most of the revenue that Google UK earns is entirely dependent on people in the UK clicking on these adverts.’

But this mental model of Google as a network of national companies with Dutch people selling Dutch adverts to be viewed by Dutch customers on a Dutch Website etc… is just not how Google works.

Continue reading ‘How much does it matter where Google ‘books’ its sales?’


Screen Shot 2016-01-25 at 23.31.54

The settlement between HMRC and Google that the company will pay  £130 million in additional back taxes and higher rates of tax in the future is big news here in the UK, and is an early sign of how implementation of the  G20/OECD ‘BEPs’ international tax reforms might play out.   A common reaction to the announcement that, after a six year investigation Google’s annual UK tax bill has been increased to around £30 million is that it doesn’t seem like a lot ( ‘very small‘….’pitiful‘…minute‘..’derisory‘…’trivial‘….. you get the picture).

It is certainly not a lot compared to popular expectations that tackling tax corporate dodging will generate billions  of additional public revenues. And it doesn’t look like a lot compared to Google’s UK revenues (Google reports that about 10% of its revenues – $6.5bn or around £4.6 billion – came from the UK in 2014).

But corporate taxation, of course, is calculated on profits not on revenues. One suggestion that is making people angry at its apparent unfairness, and which supports the view that the settlement is way below what it should be, is the estimate that £30 million represents a 3% tax rate on Google’s UK profits. Professors Prem Sikka and Richard Murphy, and tax QC, Jolyon Maugham have all come up with a similar estimate, and it has been cited today by  John McDonnell on the Today show and on Newsnight and by MPs  in Parliament.

Continue reading ‘Did the UK really agree to charge Google a 3% tax rate?’


A joint blog post with Vijaya Ramachandran – cross-posted at the Center for Global Development160114173556-oxfam-wealth-inequality-780x439Its that time of year again when presidents, CEOs and civil society leaders get together at the World Economic Forum in Davos, Switzerland, leaving the rest of us to wonder whether it is really true that a small number of very rich people at the top of the income distribution own more than the bottom half of the world.

Oxfam’s annual Davos calculation declaring that “the top [X] people have the same amount of wealth as the bottom 3.5 billion”, followed by responses from various skeptical commentators, is in danger of becoming a January tradition. (See for example Ezra KleinChris Giles and Felix Salmon and for a response to their criticisms, Nick Galasso).  This year’s calculation from Oxfam says X=62.

Defenders of this killer fact argue that quibbling over the numbers is besides the point; it is a useful headline to attract attention to the disparity between the world’s richest and poorest.

But the neat and shocking equivalence between the wealth of a Davos shuttle bus-load of billionaires and that of half the world’s population may also be beside the point. The calculation works not because 62 people own the vast majority of everything (they don’t), but because 3.5 billion people own barely anything. Both groups own less than 1% of the world’s wealth. Continue reading ‘Davos dreaming: development without development’


I did not start this blog with the intention of endlessly cataloguing strange-numbers-and-weird-beliefs in the international tax avoidance debates, but since I have taken on the role of the child-who-missed-the-memo-about-the-Emperor’s-New Clothes, I guess I have to keep pointing them out when they stride past.

Last week the king who was in the altogether was Transparency International, the grandfather of transparency and anti-corruption advocates, a usually sober organisation which takes its own accountability seriously

Transparency International’s Brussels team put out a video on the issue of multinational tax avoidance which makes the case for public country-by-country reporting;  highlighting the issue of profit shifting,  the ‘lux leaks’ scandal and state aid cases involving Fiat and Starbucks. (its about 3 minutes)

‘The potential impact of such deals is huge’

After introducing the topic the video says

“The potential impact of such deals is huge; In the EU alone 1 trillion Euro is lost each year by tax evasion and avoidance, luckily there is a solution…. ”

Hold up. A trillion Euros a year is not just huge, its huuuuuuuge. It is more than double the total amount of corporation tax that European governments collect from domestic and multinational companies combined. It is around 20 times what is implied by the OECD’s recent estimate of global Base Erosion and Profit Shifting, or 7 times the equivilient figure that Ernesto Crivelli, Ruud De Mooij and Michael Keen at the IMF come up with (*warning: back of an envelope calculations– see below).

Continue reading ‘If no one thinks that country-by-country reporting can raise a trillion Euros, why pretend it can?’


Tax abuse scandals have played a big role in the Zambian national debate on how best to tax mining, and Zambia, as a case study, has played a big role in international debates on tax abuse and development.

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Mopani by MichaelFuller.ca

In particular many believe that Zambia is a prime illustration of where multinational mining corporations are selling commodities at below market prices to offshore subsidiaries, creating an ‘illicit flow’ which conceals a hidden tax-free profit margin. Others (such as the International Council on Mining and Minerals and the World Bank) argue that the reason why Zambia’s copper revenues appear lower than other countries is more prosaic: a combination of costly mines and large recent investment expenses.

David Manley’s excellent ICTD working paper ‘Caught in a Trap’ describes the controversy and the history of Zambia’s mining taxation regime – the push and pull of secrecy and leaked documents, public pressure and government and industry brinkmanship – and the swinging pendulum of reforms that has resulted. He highlights the fiscal policy design dilemmas  of dealing with the ‘obsolescing bargain’ problem, price volatility and public expectations – and the trap of low-performing unstable investment environments that this can lead to. In particular he argues that there is a trade-off between regressive royalty-based regimes and progressive profit-based systems. Royalties  deliver earlier public payouts and are less vulnerable to avoidance, but  are susceptible to continual renegotiation pressures. Profit based taxes are responsive to price changes and underlying costs but depend on the capacity of revenue authorities to administer things like transfer pricing, and to secure public confidence in the system.

Continue reading ‘Zambia Copper, Again’


Last Friday a story appeared in the national press in South Africa, Ghana and Uganda with headlines about ‘MTN’s offshore billions’. It appeared to reveal a secret ‘stash’ of money built up by the company behind a brass-plate shell company in Mauritius.

The Finance Uncovered global network of investigative reporters have today published a cross-border investigation into South African telecoms giant MTN exposing how billions of rand from its subsidiaries in Ghana, Nigeria and Uganda have been shifted to a shell company in the small island tax haven of Mauritius.”

map MTN

Follow the red arrows…

I have written about some of the confusion and misperceptions around the big number estimates of international tax dodging, but I am wary of jumping in to ‘defend’ individual companies. There are lots of reasons not to. They can defend themselves. People will roll their eyes and say “there she goes again, helping the tax dodgers”. And if it turns out to be the next Petrobras scandal-in-waiting, I will look pretty silly, gullible or even mendacious.

But still, it’s a serious charge and deserves looking at seriously. If MTN are finagling to artificially shift profits to low-tax destinations there are questions to be answered. It they are illicitly concealing them in a secret offshore ‘stash’ that is really serious. But what if their accounts simply reflect what it looks like when you undertake the complex, legitimate and hugely important business of bringing capital, technology, cash-flows and know-how together to build mobile phone services across 21 countries in Africa and the Middle East? Continue reading ‘Looking for MTNs ‘Offshore Stash’’


As regular readers of my occaisional blog posts will know I have had a bee in my bonnet for some time about the how we understand (and frequently misunderstand) the ‘big numbers’  about international tax evasion and avoidance (and related illicit flows), and what they might mean in relation to finance for development.

I am now working on a small project with the Center for Global Development to build shared understanding of these numbers. Most excitingly the project has an advisory group which includes campaigners and tax experts engaging constructively together.

Here is the ‘launch’ post, reblogged. Do comment here, or over at CGDev. And if you would like to be involved as a reviewer get in touch with me: h…m….@gmail.com (i.e. email address is the same as the WordPress title)

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Taxing Multinationals: Is There a Pot of Gold of Finance for Development?

Taxation, which has been a Cinderella subject in development, has finally been invited to the ball, but the arguments that have helped to push taxation up the finance-for-development agenda may also be in need of clarification.

There is widespread perception that:

  1. There are huge areas of untaxed or undertaxed economic activity in the poorest countries
  2. Undertaxing is mainly a product of clever “tax-dodging” practices of multinational corporations, with armies of lawyers and accountants, and
  3. Gaps in basic health care, education, and infrastructure could be solved by a few changes to international tax policy and transparency.

These views are often expressed by campaigners who have played a key role in pushing the complex and technical topic of international taxation into the spotlight. They believe that reforming taxation of multinational enterprises would deliver amounts of money that could unlock major development benefits for the poorest countries; enough to offer a path out of poverty for billions of people (Action Aid), get every child into school four times over (Oxfam), end world hunger (IF Campaign) or prevent 3.6 million deaths in the world’s poorest countries (ONE campaign).

It is certainly true that the potential for domestic resource mobilization dwarfs all other forms for financing for public spending, and it is also true that countries have achieved significant gains by concentrating on improving tax collection.  But there are methodological issues with some of the calculations of taxes lost, and the particular issues they relate to.

And more broadly there is an inconvenient truth that these ‘big numbers’ (in the region of $100 billion) are just not that big, amounting to a 1 or 2 percent increase in overall tax revenues, according to a recent study by UNCTAD, with the biggest sums concentrated on larger emerging economies. The headlines about bringing billions out of poverty and closing gaps in basic services seem to be based on the assumption that every penny of additional tax raised would go to social spending and would cross borders effortlessly. But taxes raised in countries such as China, Indonesia, and Russia are unlikely to be available for buying mosquito nets and exercise books in Mozambique and Mali. (NGOs are not the only ones to say this: the OECD’s soundbite that developing countries lose three times more to tax havens than they get in aid seems to be based on a similar conflation of big and small economies).

A polarizing dynamic has emerged in which these numbers, and the perception that they represent problem-solving sums of money for the poorest countries, have got a life of their own, and have become a barrier to understanding the problem of domestic resource mobilization. While no one argues that initial rough estimates are sufficient for evidence-based policymaking, criticizing or questioning these estimates often tends to attract rebuttals and accusations of “defending tax dodging”.

That is not constructive. Tax policy discussions should be based on sound analysis. Civil-society advocates, policymakers, and tax experts need some common ground of concepts, definitions, and data to be part of the same conversation.

We are contributing with a small project to determine how estimates related to tax avoidance and tax reforms should be interpreted, what they tell us about the potential for specific policies to raise taxes in specific countries, what we know (with what degree of confidence), and what has just become de facto common knowledge because it has been repeated so often.

The result will be a short report with a long acknowledgements list. As a first step we have drawn together an advisory group including Alan Carter, HMRC; Paddy Carter, ODI; Mike Devereux and Judith Freedman, Oxford Centre for Business Taxation; David McNair, ONE Campaign; Robert Palmer, Global Witness; Wilson Prichard, International Centre for Tax and Development; Heather Self, Pinsent Masons; Mike Truman, recently retired as editor of Taxation; and Marinke van Riet, Publish What You Pay (all participating as individuals).  Alex Cobham from the Tax Justice Network also participated in the first meeting to discuss the issues.

There was considerable agreement among the group that better analysis is needed to support nuanced policy discussion but disagreement about whether the initial use of rough-and-ready calculations and name-and-shame accusations was justified as a way to raise attention about a poorly understood and under-resourced policy area.

What do you think? Do the ends justify the means?  What is the best way forward to improve domestic resource mobilization?




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