Naspers accuses Google of dodging taxes

A unit of the South African media group has launched a blistering attack on Google, accusing the US Internet giant of dodging taxes in the local market.

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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

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  • http://www.letsgethighandmarrygaypeople.com/ Gregory S. Balchin

    geoff cohen better not have any investments in tax havens, or undeclared holiday homes.

    and picking a fight with the company that’ll have that information is probably not very smart. (but i suppose this is the company that copy/pasted content from another financial news outlet so let’s not write off shortsighted stupidity just yet)

  • Dirk de Vos

    There might well be something in the News24 point of view. It is a global problem and it should be addressed. Google made the creative accounting trick, now known as the “Double Irish” famous and it is expanding its use. See http://arstechnica.com/business/2013/10/to-reduce-its-tax-burden-google-expands-use-of-the-double-irish/ for a brief summary of how this works.

    But News24′s charge might be part of a broader tactic. In a study conducted by Pew Research using 2011 figures, the online advertsing pie was split rougly as follows: Google $12.8bn, Yahoo $3.5b, Facebook $2.19bn, Microsoft $1.9bn, AOL 0.85bn and the rest $10.11bn.

    There are three things that come into play here: Firstly, if media/journalism/content-creation is to survive, it will have to develop a business model for a largely online future; secondly, online revenues do exist (at least in the US) but, thirdly, Google is taking the loin’s share. Indeed, Google’s share is bigger than the rest of the online media combined. Media companies might take the view that Google is riding on the back of content that they create and pay for. This might then be the opening shot in a protracted tussle for online revenues.

    There will be claims about Naspers’ own offshore structures (such as they are) and therefore charges of hypocrisy but Naspers does nothing on the scale of Google, not even close. Media24 would however do well to examine its defence to the Moneyweb claims of plagerism or even wholesale lifting of content.

  • http://www.letsgethighandmarrygaypeople.com/ Gregory S. Balchin

    google does it because it’s big. and naspers would too.

  • Jon Attwell

    If 24′s rate cards were at all reasonable and made for a sustainable eCommerce advertising avenue I would side with them… but at ~R400 CPM’s for a 250×250 image I can’t help but fire up another AdWords campaign as a substitute for premium ad space.

    Fact is that Google comes out ~4 times cheaper on average in the fashion industry.

    Tax evasion or not Google make it possible to actually operate a semi-profitable eCommerce operation in SA and they deserve a little credit for it

  • Vusumuzi Sibiya

    >> Media companies might take the view that Google is riding on the back of content that they create and pay for. This might then be the opening shot in a protracted tussle for online revenues.

    Agreed, there are huge production costs associated with some of the content that Google is able to ride on but the media companies are also in a position to leverage online benefits through AdSense.

    Content producing media companies can also play in the digital space by firing up AdWords campaigns for their clients which optimze for ad placements in their own content which they have available online and can rack up the AdSense revenues which will be paid to them by Google.

  • Chris

    Google should just quietly start directing traffic away from any Nasper pages….

  • Eduard Marais

    It is not that easy to register for VAT in South Africa. There is a massive backlog (for VAT registrations) and SARS wants to visit your premises before they issue your VAT number. It is going to be interesting to see what happens come April.

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