One of the attention-grabbing measures in the Autumn Statement by Chancellor George Osborne was the google tax on profits going offshore, which may prove unworkable (The Independent). This is interesting because a common mechanism for moving the profits around is so-called transfer pricing, where the business in one country pays an inflated price to its sibling in another country for some supplies. It sounds like the intended way to deal with that is by inspecting company accounts and assessing the underlying profits.
So what’s this got to do with Free Software? Well, one thing the company might buy from itself is a licence to use some branding, paying a fee for reachuse. The main reason this is possible is because copyright is usually a monopoly, so there is no supplier of a replacement product, which makes it hard to assess how much the price has been inflated.
One possible method of assessing the overpayment would be to compare with how much other businesses pay for their branding licences. It would be interesting if Revenue and Customs decide that there’s lots of Royalty Free licensing out there – including Free Software – and so all licence fees paid to related companies are a tax avoidance ruse. Similarly, any premium for a particular self-branded product over a generic equivalent could be classed as profit transfer.
This could have amusing implications for proprietary software producers who sell to sister companies but I doubt that the government will be that radical, so we’ll continue to see absurdities like Starbucks buying all their coffee from famous coffee producing countries Switzerland and the Netherlands. Shouldn’t this be stopped, really?
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