After the Bell: Google’s tax manipulation is just outrageous, but not unusual

It’s a little-known fact that companies are required to break out what proportion of their tax is “domestic” and what is “foreign” in their financial statements. To my knowledge, this is not something that ever gets highlighted when companies report their results. Everybody is understandably so focused on the income, earnings and other crucial metrics that this little detail gets lost in the wash. 

The other reason is that reporting on companies is typically monitored by financial analysts and journalists in the domestic market, and I would guess they are not particularly interested in whether foreign countries are being screwed so long as their own is not.

But really, when you start to look at it, it’s fascinating – and equally fascinating why the developing world has just allowed itself to be royally screwed for decades on end. A good example here is Google, or Alphabet as the corporate structure is titled.

In the year to September 2024, Alphabet had revenue of $339-billion and net income of $94-billion. That right there is just astounding. This is a net income margin of nearly 28% – that is pretty fantastic, you have to say. No wonder Alphabet is the darling of the entire investment world – or to put it another way, no wonder news organisations around the world are dying a rapid death. Google is hoovering up advertising budgets at a frantic rate; its revenue and income have calmly doubled in the past five years.

But at least it pays tax, right? Er … not so much. Alphabet’s tax is 15.8% – it’s never been above 16% in the past five years. That’s ridiculously low – it’s about half what I and just about every other working stiff around the world pays in just personal income tax, never mind all the other dozens of taxes we all pay. 

For the tech industry, that’s lowish, but not abnormal. Microsoft pays 18%; Meta pays 13%. Big international banks like Goldman Sachs pay about 20%; big high-earning mining companies typically pay about 30%, partly I would guess because they pay mining royalties on top of their tax. 

So, how does Google manage to get away with this? Well, not by underpaying the US taxman. Alphabet paid $13-billion in US taxes last year. About half of Alphabet’s income comes from the US, which means its domestic tax rate is 22%, excluding deferred taxes (which, by the way, are a lot – a little less than half the total actually paid). But foreign taxes paid came to $2.1-billion, which is a tax rate of – and I am not making this up – 1.2%. Presumably Google executives go into fits of giggles when they read this.

Alphabet, and all other companies, refuse to specify what they are paying in each respective country. But it doesn’t matter really because we know Google basically pays no tax in South Africa; the total tax it pays in Europe, the Middle East and Africa is a little over 1% of its income. SARS, of course, won’t tell us what tax Google pays because it doesn’t want us, the public, knowing embarrassing information about how much political figures and multinationals pay – or, as it happens, don’t pay. 

I should note that in a 2024 report commissioned by Google and conducted by Public First estimates that Google’s products and services contributed about R11-billion to the South African economy in 2023. But this is, of course, goop. This is what people in South Africa earned using Google’s services. Well, that’s great of course, but we don’t credit Toyota for what Panarottis earns for delivering your pizza.

How do tech companies get this right?