Naspers hits out at Google over tax dodge
11 February 2014
Posted by: Author: Business Tech
Author: Business Tech
Naspers, through its subsidiary 24.com, says it is concerned by Google's competitive advantage through its ability to avoid paying taxes in South Africa.
Listed media company, Naspers, through its subsidiary 24.com, says it is concerned by Google’s competitive advantage through its ability to avoid paying taxes in South Africa.
The search and advertising giant’s tax practices have come under intense scrutiny in recent months, particularly in the UK, and in other European countries like France, who claim that Google abuses tax and accounting laws that allows it to pay less tax.
And in South Africa, as in the UK, entities which are not local tax residents, are only subject to income tax in respect of income which arises from a "source” within the country.
Naspers’ 24.com believes that Google clearly has a dominant position in the South African market and local digital publishers would benefit if the playing fields were leveled, "making global companies abide by the same rules, price structures and economics faced by smaller local businesses”.
The media company argues that digital publishers in South Africa are struggling to compete for a slice of the on-line advertising pie with Google, which currently transacts through an off-shore entity without having to declare revenue or profits, thereby avoiding paying local taxes.
Google’s current revenue from South Africa from online advertising is put at between R800 million and R1 billion, making the potential loss for South African companies, and for tax revenues in this country significant, 24.com says.
Based on these figures, lost tax revenue from Google is estimated at R140 million per annum in corporate taxes, and possibly a further R100 million in PAYE.
Geoff Cohe, CEO of 24.com, said: "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.”
New e-tax laws in SA
South African tax legislation will change effective 1 April 2014, to ensure that global e-commerce businesses comply with local VAT regulations.
However, 24.com notes where the companies are not registered locally, they will not be subject to a local income or purchase tax.
Cor Kraamwinkel, associate director of Price Waterhouse Coopers (PwC), said: "These new VAT measures applicable to imported ‘electronic services’, are unlikely to result in an increased income tax liability for offshore service providers.”
"Although a foreign company may be registered as a VAT vendor in South Africa, this does not necessarily result in that foreign company having a taxable presence or permanent establishment in South Africa for corporate income tax purposes.”
This, Kraamwinkel said, enables many foreign companies to avoid a South Africa corporate income tax liability by relying on relief offered in terms of a double taxation agreement between the foreign country and South Africa.
The Google tax
24.com highlights a legal development in Italy dubbed "the Google tax” which 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.
It says that 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.
"Significant legislative changes will be required before South African internet businesses will be able to compete with some of their global counterparts on a level tax playing field in South Africa, 24.com said.
Google South Africa responds
Last year, BusinessTech asked Google South Africa for clarity on its position within the South African market, but a Google spokesperson skirted the queries, saying that the company does not break up revenues by country (except for the US and UK) and simply stated that it complies fully with the tax rules in South Africa, as in every country it operates.
This article first appeared on businesstech.co.za.