If we look at copyright in the UK, then according to the UK copyright service, which states that “In the case of business ideas, it is again the recorded work rather than an intangible idea that is protected. Copyright would apply to items such as written documents, artwork, etc. – i.e. a Business plan, promotional literature, website, logo, and such items could certainly be registered.”
From that point of view, the creative tax efforts by Vodafone could be seen as an original work of ‘art’ (by lack of a better word), yet are they alone and are they really the first?
Yes, there is so much frustration in voices of people all around me as I hear them complain about the too fast rising cost of living. The fact that I saw an article last week in a newspaper stating that the minimum income for getting a mortgage in London now exceeds a million pounds, which I reckon is some new record to fight. So as many, who dream of a place around Swiss Cottage or Bond street (to keep the Lord’s Cricket grounds within walking distance), we see that this new price tag makes London an affordable place, mainly for Bankers and dealers in amphetamine based chemicals and that is pretty much it. So when these realities hit us and we see that a deal is struck with Vodafone for hundreds of millions of revenue (for the goal of non-taxability) made by what was described as an empty office in Ireland, waves of anger hit many people. This could be seen as a sign that the rich will get richer, at the expense of everyone else.
But is that the actual truth? It seems more a sign of the time than anything else. Vodafone is in pretty good company. They are actually one of the smaller players when we consider grocery shop sized companies like Google and Amazon. It gets to be a lot more hilarious listening to MP Margaret Hodge complaining about it to Google (in May 2013), whilst she is directly connected through family to Stemcor who is having the very same artistic approach to the payment of taxation (or lack thereof). The Telegraph in November 2012 reported that Stemcor, which reported revenue around 2.1 billion with a reported profit of 65 million paid a mere 163,000 pounds in taxation.
Whoever came up with that idea was worth his weight in gold and gemstones in the eye of these corporations.
It does not end there and it goes far beyond the borders of the UK. Consider the following. A software company has an item prices at ‘X’ and then adds consultancy valued at ‘Y’ and the total being ‘Z’ is charged.
So let us take a basic approach. The customer wants the package which requires software and a consultant and is willing to pay 100, consultancy is set at the basic price of 80, which means if the disc could be valued at 20, the price is met, and as such the customer is a new and happy customer. Yet, the books would reveal that even though 100 is truly placed in the books (as a package deal), the disc value is now set at 70 and the consultants at 30, 100 remains the fixed set price. It is interesting that the 70 is set towards the foreign owner of the program and a value of 30 remains behind. Of course the consultant was more (a lot more) expensive, and as this is all within one corporation the consultant will get his monthly income. Yet, was there a case of tax evasion?
It becomes an interesting debate, more important, it becomes the environment of global corporations and even more interesting is where the revenue and taxable revenue should be placed. I would share the view that this is more than a sign of the times; it is now fast becoming THE sign of the future.
In the age of technology today, many government types (PM, MP’s and exchequers alike) might look at certain developments of ‘new technology’ moves, as corporations go to the cloud and digital distribution, yet there seems an apparent lack of ‘comprehension’ is not the right word, perhaps it is ‘realisation’ that all these revenues would no longer be taxable and Microsoft is not even close to being a frontrunner. At present Adobe is far in the lead there. Consider all these advertising and publications houses, they are in abundance in the UK and those houses have moved to some extent, or are largely moving to the Adobe creative cloud, software, that is no longer sold in the UK, costs that are paid for in the UK and are therefore tax deductable revenue, which is shrinking the UK government revenue pie chart by a lot, especially as revenue from the other side of that equation is no longer in the UK for any level of taxation.
Whether we realise it or not, the old tax deduction scheme was designed on some level of equilibrium. We had tax deductions on one side, because we bought certain items like hardware and software. Hardware is now no longer the expensive post it used to be and the software part that is still steep in some cases is no longer bought, it is leased. As such the equilibrium is gone and a nation cannot continue on one side to hand out deductions as the other side of the scale no longer exists. This gives us two dangers. The first is that certain parts would lose deductibility as the other side stops existing; this should be seen in the light that the cost of business is going up, whilst revenues will not get better. This approach is set by the bulk of cloud providing ‘solutions’ and that group is growing really fast. If the UK government (not just them) loses out on taxable revenues exceeding 15 billion pounds on software alone, where will they get the money from? When we consider the trillion pound debt, then we should worry about such changes and it is not just the UK who is facing them. These companies as mentioned before are doing this on a global scale, which means that Europe is getting hit hard all over the place and it is not unlikely that as cloud servers are placed all over the planet these companies will move into new group that could be labelled as ‘the global non-taxable core of corporations’.
In the past I proclaimed strongly that when we saw the information about Microsoft with their Xbox One approach and the cloud was not about gamers. Gamers do not warrant the implementations of over 300,000 servers. Yet, add the earlier mentioned events to the equation and we end up with a global customer base of software and as Microsoft stated it themselves, an entertainment provider of TV, Movies and Software, all in the cloud! As we see the situation now, likely less than one tenth of a percent might end up being taxable. In that same light should you wonder why NTT DoCoMo was so happy to get into the Indian market, then here is the evidence. Out of a very rough estimation (by me) of a total value of entertainment products that is cloud distributable which exceeds 350 billion (business and entertainment products), consider that these products would in future yield less than 0.5 billion in tax revenue on a global scale. This means that national infrastructures on a global scale are about to get hit really hard (unlikely before 2014). So as NTT DoCoMo starts streaming 4G based entertainment solutions, a massive amount of taxable revenue would no longer end up being taxable at all. So long Tax department of India!
It was exactly for these reasons that I advocated an approach where taxability of services are charged on the consumers side, to avoid the pitfall many governments are about to get faced with. That approach would end the dangers of Google, Amazon, Vodafone et al to walk away with a ‘non-taxability’ based commission solution.
Lawrence van Rijn - Law Lord to be 