UK tax dodge says Google has joined the other side

Simon English
21 Apr 2009

Has any company ever fallen from grace as decisively as Google? When it floated in 2004, it was easy to believe its claims to be a new kind of company, one that would bestride the globe in positive ways.

Founders Larry Page and Sergey Brin seemed perfect — they were rude to Wall Street and disparaging of America's stifling corporate culture. They would be radically different, they promised. The prospectus for the float laid out in detail how they intended to turn the world upside down.

The company would not seek to grow uniformly, sometimes it might even shrink. Benefits to staff such as pensions and healthcare would get ever more expensive. Investors who didn't like this should take their money elsewhere.

Back then, Google really did seem like it would change the world, not least by making us all instantly cleverer. Things that previously took hours to research were available in a flash. Information was democratised and the possibilities seemed endless.

Arguments about who was paying to generate this information in the first place weren't properly formed. In any case, if it became a problem, Google would do the right thing, would abide by it's now-clichéd motto — don't be evil.

It's not exactly clear when this motto was abandoned — maybe Page and Brin were having us on all the time. Several recent developments make clear that Google is no longer even pretending to be the good guys. It has become as insular and arrogant as any organisation it once set out to oppose.

It emerged at the weekend that it avoids paying about £100 million in tax it would otherwise owe to the Treasury by basing its UK arm, for accounting purposes, in Ireland.

That it doesn't feel obliged to make a contribution to the UK exchequer, preferring that the rest of us make up the difference, seems in keeping with its wider attitude. It expects to get things for free.

In interviews, chief executive Eric Schmidt makes the disdain he holds for the traditional newspaper industry plain, even while he makes a fortune from reproducing its content.

He scoffs at the idea that he might agree to pay a proper fee for journalistic work, preferring to harangue the industry with demands that it “innovate”.Musicians, authors, photographers and others face the same call — adapt your business to our needs or die.

Of its many recently launched applications, Street View seems most indicative of the company's feelings towards the rest of us. If we'd rather our homes weren't available for view on the internet, we can write to them saying so.Surely the onus should be on them to get permission in the first place rather than on us to complain later.

This is why Google is unlike other huge corporations, all of which can be avoided by consumers who are sufficiently motivated. If you decide that you can't stand General Electric, buy different light bulbs. You can't opt out of Google — you are on it whether you want to be or not. Maybe it is time to consider a boycott. Schmidt's most recent, patronising, advice for the news industry was this: “Think in terms of what your reader wants. These are ultimately consumer businesses and, if you piss off enough of them, you will not have any more.” Exactly.

At the moment, Google is still fantastically useful. But it only remains so for as long as it has the goodwill of the public and of rival companies.

There's a chance that Google could eat itself by making all other forms of information gathering unprofitable. Or by irritating media giants so intensely that they come together to prevent their content landing on Google for free.

If that happens, it will have only itself to blame.

* Sly Bailey, the Trinity Mirror chief executive, doesn't seem like the sort to actually love newspapers, or to understand why a good local paper specialising in village fêtes and council meetings can be a thing of such great value. But her speech at last Friday's Digital Britain summit suggested she could yet help lead the industry out of the darkness.

“We've been playing in to the hands of the very businesses that play so fast and loose with our content. We've become dependent on pats on the back from new kids on the block who tell us what the rules are,” she said. “By the absurd, relentless chasing of unique-user figures we are flag-waving our way out of business. Unique users don't pay wages.”

Magic number that put Citi in profit – sort of

Two years into the crisis and still the American banks are telling fibs.

There seems to be a complicit agreement between Wall Street and Washington to pretend that the banks are now profitable, as if wishing made it so.

Citigroup's first-quarter results last week in particular seem to rely on accounting gimmickry to reach a headline number that is largely misleading.

On the face of it, Citi made profit of $1.6 billion in the last three months — result! You had to read deeply into the numbers or wade through analysts' reports to see this would have been a $900 million loss, but for a magic $2.5 billion.

The $2.5 billion comes from a rule introduced two years ago which allows the bank to record any fall in the market value of its debt as an instant profit. So, because it could buy this debt back at a discount, that's recorded as a gain.

It hasn't bought the debt back, of course. So all it is really celebrating is that it became less attractive to lenders. Sell.

Stockbroker's paws for thought as our cat heads for the cream

There's less than a month to go until the end of our share-tipping contest­— and the office cat is in the lead.

Back in November, I advised you to ignore attempts by stockbrokers to lure you into equities for the next six months because the market turmoil made it impossible to measure the risks attached to even the most solid company.
Analysts who claimed they were able to pick their way through the maze were having you on.

Charles Stanley took up this challenge, picking five shares it said would both outperform the market and provide a better return than cash. We picked five stocks of our own and the cat pawed its way around an FT. Our favoured investment vehicles at this point were the building society or a mattress.

Charles Stanley earns praise for being brave enough to stick its neck out. And the tips of its leading analyst Jeremy Batstone-Carr are comfortably beating the FTSE. But at this point it does look like he may come second to a cat and a building society and only narrowly ahead of a mattress.

Under the original terms of the competition, if he loses to the cat, Batstone-Carr has to give up a surname.

Charles Stanley says, on that basis, that if I also lose to the cat it would only be fair for me to quit writing about equities altogether.

It's a reasonable point, made stronger by the performance of our own portfolio, which is down a dreadful 17%, even worse than the wider stock market.

I could argue that this just proves my original case, but perhaps that would be churlish.

Pet's picks pull ahead

Cat - up 1.7%
(BG Group, ENRC, Dairy Crest, Charter, Rio Tinto)
Charles Stanley - up 1.4%
(Glaxo, Vodafone, BAT, Sainsbury's, BHP Billiton)
Evening Standard Business desk - down 17%
(Ryanair, Aviva, Begbies Traynor, BP, Imperial Tobacco)
FTSE - down 12.8%