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Google has done nothing illegal. Just the same some British Members of Parliament (MPs) are angry and will likely call company executives (probably Eric Schmidt) to testify about why Google doesn’t pay its “fair share” of taxes in the UK. According to published reports and company…



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Google has about 1,200 employees in England and made £395 million in revenue there last year (that’s just under $620 million). It did, however, only pay £6 million in taxes in England last year. Unsurprisingly, that’s not sitting well with a number of British politicians and according to The Independent, Google could face a more formal investigation into its tax schemes by next spring.

Google bases its international operations in Ireland, where corporations pay a tax rate of just 12.5%. Using a legal tax loophole called “Double Irish,” the company can move a large chunk of its UK profits to Ireland and then Bermuda. There, of course, the company pays even less tax.

According to the Independent, Google’s Irish subsidiary basically employes Google UK as an agent. Because of this, Google’s UK revenue goes straight to Ireland. The Irish headquarter then pays Google UK a 10% fee and, “once costs have been deducted,” that’s all Google UK pays taxes on.

It’s worth noting that the £6 million Google paid for 2011 is significantly more than it ever paid before. In the six previous years, Google only paid £8 million in total. The company has recently made a larger push into England and expanded its engineering team there by about 40% last year.

Here is Google’s statement regarding this matter:

We make a substantial contribution to the UK economy through local, payroll and corporate taxes. We also employ over a thousand people, help hundreds of thousands of businesses to grow online and invest millions supporting new tech businesses in East London. We comply with all the tax rules in the UK.

If Facebook could collect its 30% tax on what we pay monthly for Spotify, Hulu, or Netflix using the subscription payments system it’s rolling out today, it’d have nice new revenue stream to swim in. But that’s a deep cut for developers to give away just to smooth out friction in the one-time subscription set-up for material services.

So far, the only partners listed in the subscription payment beta started in June Facebook has listed are game companies like Zynga and Kixeye offering discounted virtual good and currency packages as beta partners. Facebook is a huge lead generator for media and web services too, though. It needs to leverage its powerful discovery channel to get into the payment stack, but 30% might just be too steep.

That’s not too far fetched, considering Facebook’s CFO David Ebersman explained in its pre-IPO Roadshow video that it’s considering charging less than 30% outside the games vertical.

Right now, Facebook’s business plan revolves around gathering content into an omni-news feed straight from users and from third-party apps via Open Graph, and then monetizing eyeballs with ads. Meanwhile, the money sucked in through the 30% tax it levies on in-web app payments has plateaued this year, become a much smaller percentage of total revenue.

This is happening for two big reasons. 1. Gamers are moving to mobile where they pay Apple and Google, not Facebook. 2. The 30% tax has deterred adoption by a growing class of subscription apps. See, 30% isn’t outrageous for game companies. Though they have big expenses on originally designing virtual goods and the games that house them, the per unit cost of selling them is effectively zero. But apps that rely on content licenses where they pay out per play and that have significant streaming costs can’t afford 30%.

There’s only a handful of media app developers like on-demand movie renters Ooyala and Milyoni who are surviving the current tax structure, and they aren’t thriving. But the newly rolled out subscription system lets set up recurring billing through your credit card or PayPal account.

Now that it can process subscription payments, though, Facebook needs to sign on the world’s most popular music and video streamers, specifically Spotify, Netflix, and Hulu. News is another potential vertical where it could try to join the payment stack, plus there’s also professional and web-hosting services., and personal fitness apps. Facebook even hinted at some potential partners, showing Spotify, MOG, and RunKeeper in mock-up of user’s subscription payment dashboard.

Sticking with music, lets take Spotify for example. Every user must sign in through their Facebook account, and Open Graph auto-sharing of every song they listen to has helped the service grow from 1.3 million daily active users in September and 3 million paying subscribers in January to 6.6 million DAU and 4 million paying subscribers today. At an average monthly fee of $7.50 each, Facebook would have made $27 million in a year on the 1 million new paying subscribers it helped source if it could get users to set up their subscription on Facebook where they discovered the service.

Spotify might balk at 30%, but 10% or 15% could be a better fit. And if Facebook wants to play hardball in getting the music service on board, it could always hint at turning down Spotify’s presence in the news feed if “relations deteriorated”. Earning $13 million might not sound like much, but Netflix has almost 5X as many paying subscribers. Those millions stack up.

It might be a bit messy trying to divide between who’s a game developer pay 30% and who’s an app developer paying 10% or 15%. Facebook should make a choice, though. Either lower the fee and convince established digital subscription services to pay for the discovery Facebook offers, or focus on ads while exploring social gifting to earn more and save its shattered share price.

The Nevada Board of Economic Development on Wednesday green-lit plans to grant Apple $89 million in tax cuts for a proposed data center and accompanying buildings in downtown Reno and the town of Sparks.

Many states are once again hosting tax-free weekends for back-to-school shoppers and everyone else who wants to save money on things like computers and clothing. OneDayBuys has compiled the list of items free from sales taxes by state. [jup] More »

Shopping site Kogan imposes an “Internet Explorer 7″ tax. Kogan then mysteriously disappears from Microsoft’s Bing search engine. Revenge? No, just a technical goof, says Microsoft, one that it is correcting. Kogan grabbed headlines last month when it began adding an additional…



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Senator Chuck Schumer (D-N.Y.) hijacked the senate floor today to address critics of his recently proposed Ex-PATRIOT act legislation, which would impose new taxes on people who give up their U.S. citizenship to avoid taxes and bar them from re-entering the country.

Schumer, along with Sen. Bob Casey (D-Pa.), introduced the Ex-PATRIOT act (Expatriation Prevention by Abolishing Tax-Related Incentives for Offshore Tenancy Act) last week after the public had caught wind of Facebook co-founder Eduardo Saverin’s decision to renounce his citizenship. The move ended up saving Saverin an estimated $100 million.

“When you renounce your citizenship to swell your bank account, you’re un-American,” Schumer said. “What Saverin is doing is free-riding on America, and dodging taxes from an IPO.”

The Senator also called out the Wall Street Journal for labeling him a vocal spokesperson in the “age of envy”, and scalded republican opponents of his legislation, saying “they make Eduardo Saverin into their patron saint.”

Honestly, I don’t think Saverin would argue with being called “un-American,” considering that he didn’t feel compelled to continue being a citizen. And while I agree that having the ultra rich dodge taxes is a bad thing for the country, Schumer’s plan for handling this situation is utterly awful.

Under the proposed bill, expatriates with either a net worth of $2 million or an average income tax liability of at least $148,000 (over the last five years) will be presumed to have renounced their citizenship for tax avoidance purposes. Any person who fits this description does have a chance to appeal to the IRS to prove they aren’t just dodging taxes. Anyone who the IRS determines was indeed dodging taxes by renouncing citizenship will be slapped with a new tax on all future investment gains — no matter where he or she resides. The senators said this stipulation would eliminate any tax benefit/financial incentive associated with renouncing one’s citizenship. Also, the rate of the new capital gains tax will be 30 percent, which is consistent with the current rate applied on non-resident aliens for dividends and interest earnings.

So to summarize, Schumer wants to tax people who give up their citizenship as if they were still citizens. And if they refuse to pay these taxes, they can’t come back into the country.

I highly doubt this is going to prevent people from giving up their citizenship. I do, however, think the Ex-PATRIOT act (if passed into law) would end up driving investment into Europe and Asia in the long run.

Please feel free to sound off with your own thoughts in the comment section.

Photo via Sen. Schumer/ Flickr

Filed under: deals, social

Around 1,800 U.S. citizens living abroad formally renounced their citizenship in 2011 — just like Facebook co-founder Eduardo Saverin — and many did so for tax purposes.

Saverin told Bloomberg today that his decision was one of convenience; it’s widely assumed that the young would-be billionaire refers to financial convenience. Filing taxes as a U.S. citizen living abroad can be an expensive and complicated nightmare, and at least 1,788 (and likely many more) made the choice to sever their U.S. ties rather than dealing with it.

Right now, Saverin controls around 4 percent of Facebook stock (although Facebook CEO Mark Zuckerberg controls the votes for those shares due to some contractual jiu jitsu). That stock will be worth billions as of Facebook’s IPO day, and as a result, Saverin could lose billions in a quick stock sale through capital gains taxes.

Singapore, the country in which Saverin currently resides, is a tax haven that levies no tax on income generated outside Singapore. Also, as a non-U.S. citizen, Saverin would get to skip disclosing his personal and other bank account balances to the IRS.

Though his decision is highly controversial, Saverin is hardly alone is his decision. The State Department said it records around 1,100 citizens voluntarily renouncing their citizenship each year, but the tax-related expatriations list from the IRS tells a different story.

And the number of U.S. citizens voluntarily expatriating in 2011 was more than double the number in previous years. In fact, more U.S. citizens turned in their passports in 2012 than in 2007, 2008, and 2009 put together.

Because the U.S. is one of just a handful of countries that taxes expats for income earned outside the United States, our expats have more hurdles than most come tax-time, including lots of disclosures and paperwork on foreign and domestic income and accounts. And a new tax law requires foreign banks and other financial institutions to turn over data about U.S. clients to the IRS each year. Failure to comply can lead to fines (fines that start at $10,000) and criminal charges, even when the taxpayer in question doesn’t actually owe any money.

Saverin and other expats do face a departure or exit tax, but in the future, they will be exempt from having to disclose their financials in ways that many clearly consider too invasive.

Filed under: VentureBeat

Well that’s some slick timing. Eduardo Saverin, who is best known for co-founding Facebook with Mark Zuckerberg back in their college days at Harvard, has given up his United States citizenship.

His name appeared on a list published on April 30 by the United States Office of the Federal Register, which issues a quarterly list of people who have given up their U.S. citizenship. The news was first picked up by Bloomberg earlier today.

The switch will almost certainly decrease the number of American taxes he owes on the $3.84 billion or so he is reportedly in line to make once Facebook goes public, which is widely expected to happen next week. As Bloomberg reported: “Renouncing your citizenship well in advance of an IPO is ‘a very smart idea’ from a tax standpoint, said [University of Michigan international tax law professor Reuven] Avi-Yonah.”

On the surface, this might seem like an opportunistic move. In many ways, Facebook’s story is the most modern example of the American dream gone right. Some would argue that those who have gotten rich from the company should pay some dues back into the system that enabled that success. As billionaire Mark Cuban has written on his blog, the “most patriotic thing you can do” is “bust your ass and get rich. Make a boatload of money. Pay your taxes.”

But to be fair, Saverin is a pretty unique case: He was born in Brazil in 1982, became a U.S. citizen at age 16, and has lived for the past several years in Singapore (where he reportedly drives a Bentley, parties at posh members-only clubs, and prefers the company of supermodels.) He’s also said to be investing in lots of South American and Asian companies at the moment. By all accounts his footprint is legitimately a global one.

And anyway, this isn’t the first time Saverin has made a savvy move in regards to complicated international financial regulations. In a widely published IM conversation from his college days, Mark Zuckerberg described Saverin like this: “My friend who wants to sponsor [Facebook] is head of the investment society. Apparently insider trading isn’t illegal in Brazil so he’s rich lol.”

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Facebook is Getting its Own App Store for All Devices, All Platforms, All Prices (VentureBeat)
Facebook is launching a new App Center, “a place to find social web, desktop, and mobile apps” — and not just Facebook apps. The App Center will bring Facebook’s 900 million users all the best in iOS apps, Android apps, web apps, mobile web apps and even desktops apps. Facebook Developer Blog Many developers have been successful with in-app purchases, but to support more types of apps on Facebook.com, we will give developers the option to offer paid apps. This is a simple-to-implement payment feature that lets people pay a flat fee to use an app on Facebook.com. CNET The challenge, for a platform like Facebook, is that it has to build a store on top of other existing stores. It is especially tricky to build on top of the Apple App store, which remains the only legitimate channel for users to get apps onto iOS devices. AllThingsD Ironically, on Wednesday, the company submitted another amendment to its S-1 filing to the SEC, further outlining its weaknesses in the mobile realm. The company’s daily active users has grown fast over the past year. But the corresponding number of ads delivered isn’t matching the pace of the daily-active-user growth. CNN Money Facebook founder Mark Zuckerberg won’t be the only one collecting billions from Facebook’s initial public offering: Uncle Sam and the state of California are also poised to cash in big. Tax collectors will be taking a giant bite out of the paper millions that thousands of Facebook employees will soon gain. The average tax hit: $1.1 million per employee. continued…

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