A unit of media giant Naspers has launched an extraordinary and blistering attack on Google, accusing the US Internet giant of not paying its fair share of taxes in South Africa. It says Google is making it hard for local digital publishers to compete because it transacts through an offshore entity “without having to declare revenue or profits”.
The media group says that “some estimates” put Google’s revenue from online advertising in South Africa as higher as R1bn. This makes the potential losses for South African companies and losses in tax revenues “significant”.
“Based on these figures, lost tax revenue from Google is estimated at R140m/annum in corporate taxes, and possibly a further R100m in PAYE,” Naspers online publishing division 24.com says in a statement.
“Google clearly has a dominant position in the South African market and local digital publishers would benefit if the playing fields were levelled, making global companies abide by the same rules, price structures and economics faced by smaller local businesses,” 24.com says.
“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 taxpaying business employing hundreds of South Africans, we are competitively disadvantaged through aggressive tax-planning strategies of global businesses,” says 24.com CEO Geoff Cohen.
But Google has hit back, telling TechCentral in a statement that the company “complies with tax laws in South Africa and every country where we operate”.
However, the company says that under current South African tax rules, value-added tax (VAT) reporting and remittance is the responsibility of Google’s advertisers. That’s set to change from 1 April, when suppliers of digital goods and services will have to register as VAT vendors.
It says, too, that it works closely with South African publishers to drive user traffic to their websites through organic search results and through Google News.
It says it sends users to news sites worldwide more than 10bn times a month, with each click representing a business opportunity. “In 2013, we shared more than US$9bn with our AdSense partners.”
But according to 24.com, “significant legislative changes” are needed for local Internet businesses to compete with their global counterparts on a level playing field in South Africa.
“Considering the rapid growth rate of digital advertising, it remains to be seen whether, and if, South African tax legislation will be amended quickly enough to adapt to this critical issue,” the company says.
Google has come under fire in other jurisdictions, including the UK, Australia, France and Italy, over allegations that it uses creative methods to avoid paying taxes. The company has come under attack in the UK for designating its UK office as primarily a marketing operation and paying a tiny fraction of its revenues over to the Exchequer.
The Telegraph reports that just last week, French president Francois Hollande warned that France would not continue to tolerate tax optimisation strategies used by multinational Internet companies such as Google.
“This is not acceptable and that is why, at both the European and the global level, we must ensure that tax optimisation … can be called into question,” Hollande is quoted as saying. “Everyone must be in the same competition situation, including on the fiscal level.”
His comments came just days before a state visit to the US, where the issue of tax harmonisation was set to be a hot topic for discussion with his counterpart, Barack Obama. — (c) 2014 NewsCentral Media