At the Intellect Regent Conference last week, a panel discussed (amongst other things) what could be done to help the UK tech industry. I think the answer was “Spend more on tech with us”. The panel consisted of Mark Farrar (Microsoft), David Callaghan (Oracle), Nick Wilson (HP) and Robert Whiteside (Google). It did not pass Vin Murria (CEO of ACS) notice that they were all US HQed companies. Vin asked why non UK tech companies paid so little tax in the UK.
Any reader of the Sunday Times today will have read The Anti-Social Network. It reported on the various ways that US companies use to ‘minimise’ UK tax – in particular how they channelled so much revenue via Ireland which has a low 12.5% corporation tax rate. Last year Facebook had €229m revenues in Ireland whilst its UK subsidiary reported revenues of just £15.3m and it paid just £397K tax in the UK. Google was even worse. Google generated £2.2b revenues in the UK but paid just £1.2m tax here – largely by channelling much of it via Ireland and other low tax centres.
It should be pointed out that the revenues that Facebook or Google generates in the UK comes from a total advertising pot which is under pressure. They have won market share against other advertising sources – mostly radio and TV, national and local press. These tended to be UK HQed and would have paid any corporation tax here. The point I’m making is that the way that both Facebook and Google organise their tax affairs actually take away from the tax previously paid by UK HQed competitors.
Microsoft, on our reckoning, has revenues in the UK of c£1.34b - but only £663m of that flows through their UK entity, Microsoft Ltd. On that they declare a PBT margin of c10% - compared to a c30% for Microsoft in the US. As a result, they pay £19m UK Corporation tax.
Oracle, we reckon, has revenues of c£1b in the UK. But only £455m flows through their UK entity Oracle Corporation UK Ltd. On that they declare PBT margins of just 1.7% - very substantially less than 25% margin for Oracle in the US - and pay just £6.3m in Corporation tax.
Conversely, if you look at two of the leading UK HQed tech companies – ARM and Logica - they both pay substantial corporation tax here - £58.4m and £40.8m respectively. Tax-wise, UK HQed companies are generally good for the coffers of HM Govt (ie you and I).
But let’s not tar everyone with the same brush. According to their latest accounts filed at Companies House, HP UK paid £161m in their last FY on revenues of £2.9b.
Maybe some of the UK’s economic woes would be eased if all companies operating here paid their fair share.