Google South Africa’s tax mystery

Reuters recently reported that Google moved €19.9 billion (R317 billion) through a Dutch shell company to Bermuda in 2017.

According to the report, the subsidiary in the Netherlands is used to shift revenue outside the United States to Google Ireland Holdings, an affiliate based in Bermuda.

Bermuda is a tax haven, partly because companies which are incorporated in the country pays no corporate income tax.

The scheme used by Google, dubbed Double Irish, is a “base erosion and profit shifting” corporate tax tool used by US multinationals to avoid corporate taxation on their international profits.

According to Wikipedia, it is the largest tax avoidance tool in history, and by 2010 it was shielding $100 billion annually in US multinational foreign profits from taxation.

Google South Africa dodging tax questions

Google’s international tax avoidance includes South Africa, and asking the company whether it pays tax in South Africa is not a question it wants to answer.

Instead of simply saying whether it pays any taxes locally, Google SA provided the standard international response.

“We pay all of the taxes due and comply with the tax laws in every country we operate in around the world,” Google South Africa told MyBroadband.

“Google, like other multinational companies, pays the vast majority of its corporate income tax in its home country, and we have paid a global effective tax rate of 26% over the last 10 years.”

The company refused to answer any further questions on paying taxes in the country, including whether it pays VAT or corporate tax in South Africa.

MyBroadband asked SARS spokesperson Sicelo Mkosi whether Google should pay taxes in South Africa, but he said they do not give opinions on taxpayers.

“In respect of Google, the information you have requested relates to confidential taxpayer information,” Mkosi said.

Not illegal

Andrew Wellsted from Norton Rose told BusinessTech in 2014 that in South Africa, as in the UK, tax residents are subject to South African tax on their worldwide income.

However, Wellsted pointed out, entities which are not tax residents in South Africa are only subject to income tax in respect of income which arises from a “source” within the country.

“The laws in South Africa are very similar to the laws in the UK with the result that it is possible that a company may earn revenue which is generated in South Africa or paid by South African residents, without it being subject to South African tax.”

“This is because the income in question may not fall within the ‘source’ rules specifying when non-residents are subject to tax in South Africa,” Wellsted said.

If a non-resident company like Google is able to structure its business in such a way that its revenue streams are not “sourced” in the country, that revenue will not be subject to tax – regardless of whether the people who pay the company may be residents of that country.

In a nutshell, this means that even though Google is getting money from South Africans for ads, because the business is not “sourced” at Google South Africa – which directs the business offshore – the company is not taxed accordingly.

“For Google to be taxable, not only would it have to earn income from UK [or SA] residents, but that income would have arisen from a source within the [country],” Wellsted said.

So, in legal terms, Google and companies which operate their business similarly, are not doing anything illegal.

Now read: The top Google search trends in South Africa for 2018

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