Google ‘avoids SA taxes’

Cape Town – Digital publishers in South Africa are battling to compete for online advertising revenue with Google, which apparently avoids paying local taxes.
 
The digital media environment is rather unique in that revenues can be rerouted via tax loopholes.

While local digital publishers have to pay tax to the South African Revenue Service (Sars) on their revenue or profits, an international giant like Google, for instance, currently transacts through an off-shore entity based in Ireland, thereby avoiding paying local taxes.
 
Google has a dominant position in the SA online market and some estimates put its current online advertising revenue from South Africa at between R800m and R1bn.

Lost tax revenue

Based on these figures, SA's lost tax revenue from Google is estimated at R140m per year in corporate taxes.

Online publishers in South Africa would benefit if the advertising playing field was leveled, making global companies abide by the same rules, price structures and economics faced by smaller local businesses.

Most South Africans would be shocked to know the local online advertising industry is paying taxes in SA, but a giant like Google is not, Alistair Fairweather, chief technical officer at the Mail&Guardian, told Fin24.
 
“The situation is, however, not clear-cut either way. The problem with ‘fairness’, especially regarding tax, is that it is dependent on legislation,” he said.

Google is not doing anything illegal. It is just that the SA tax laws and those in other countries simply do not take the internet into account.

Fair playing field

“We are not asking for protection, just for a fair playing field,” Geoff Cohen, CEO of 24.com, told Fin24.

Local consumers have no idea of the potential damage to the SA economy because of big players such as Google taking more than R1bn in revenues out of the country without paying tax.

“What are they putting back and to whose benefit? From a competitive point of view, how are locals able to compete?” Cohen asked.

“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.”
 
Google has an office and a local workforce in SA.

“The question to ask is whether this is fair. Google can offer a service in SA, but not pay local tax, while we have to,” said Cohen.

“If Google were owned and run by a local SA entity, they would be seen as foul of local competition laws.”
 
Stuart Thomas of memeburn, a local technology website, told Fin24 that, while governments may appear to be impotent, they are trying to fight back.

Globally more and more people are asking how giants like Google are allowed to use these tax loopholes.

France, for instance, recently billed Google for years in “unpaid” back taxes.
 
"This is not acceptable and that is why, at both the European and the global level, we must ensure that tax optimisation ... can be called into question," Hollande said.

The Guardian reported that France is seeking €1bn (£830m) in tax from Google over its fiscal strategies

In Australia it has been reported that Google has refused to explain why it paid just $74 176 in Australian tax in 2011, despite making an estimated $1bn in revenue from the Australian market.
 
'The Google tax'

A legal development in Italy dubbed “the Google tax” could set an international precedent, opening the way for local taxing of Google on-line advertisements purchased in countries around the world, including South Africa.
 
The new provisions apply to Italian purchasers of online advertising, requiring them to buy only from businesses that are registered for Italian VAT payments, thus forcing them to comply with local tax laws.

“What it boils down to, is whether or not we believe companies have a duty to be ‘good citizens’ within the countries they operate in and what that might entail,” said Thomas.

“To many, paying taxes is an important part of that. After all, taxes pay for public roads, schools and a number of other services that these companies benefit from.”

He added that unfortunately, company management is duty bound to their shareholders and will always push the law to its limit.

Even the South African government intends taxing digital products and services that have so far evaded VAT.

Arthur Goldstuck of World Wide Worx, told Fin24 that local companies would then have to pay VAT on any payments to Google, for instance.

"This applies to any digital goods and services bought from South Africa," he told Fin24.

"Naturally, local authorities cannot impose income tax on Google if it is receiving the payment in the US, where it is liable for local income tax."

Google responds

In response to Fin24 a spokesperson for Google said the company 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 $9bn with our AdSense partners.”
 
The spokesperson said Google complies with tax laws in South Africa and every country where it operates.

"Under current rules, VAT reporting and remittance is the responsibility of our advertisers, who pay the same rate when they advertise with Google or any other company."

* Fin24 is part of Media24, a subsidiary of Naspers.

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