South African online media organisation 24.com, owned by Naspers, has hit out at Google for operating in the country without paying taxes, saying the multinational should be paying up to ZAR240 million (US$21.8 million) in taxes per year.
24.com has called for a change in policy for international companies operating in South Africa, singling Google out in particular because of its dominant position in the South African online advertising market, saying large corporates are jeapordising local companies and are not contributing to government coffers due to their taxation structures.
According to the news outlet, government should change the current policies to require global companies to adhere to the same rules as small local firms, rather than these companies being able to avoid local taxes through financial planning structures.
“In the digital age, we accept that we compete with businesses from all over the world,” said Geoff Cohen, chief executive officer (CEO) of 24.com.
“However, it is clearly wrong that, as we invest in building a tax-paying business employing hundreds of South Africans, we are competitively disadvantaged through aggressive tax planning strategies of global businesses.”
24.com estimates Google’s advertising revenues in South Africa as between ZAR800 million (US$72.7 million) and ZAR1 billion (US$91 million), placing lost tax revenues as approximately ZAR140 million (US$12.7 million) per year, and lost pay as you earn (PAYE) tax revenues as ZAR100 million (US$9 million).
“Significant legislative changes will be required before South African internet businesses will be able to compete with some of their global counterparts on a level tax playing field in South Africa,” 24.com said.
“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.”
While the organisation concedes South African tax legislation is set to change as of April 1, 2014, introducing value added tax (VAT) liabilities for global e-commerce companies operating in the country, 24.com said the changes can still be circumvented by organisations not registered locally.
For these companies, 24.com said, “it seems that there is little that the authorities can do”.
“These new VAT measures applicable to imported “electronic services”, are unlikely to result in an increased income tax liability for offshore service providers,” said Cor Kraamwinkel, associate director of corporate international tax for PwC.
“Although a foreign company may be registered as a VAT vendor in South Africa, this does not necessarily result in that foreign company having a taxable presence or permanent establishment in South Africa for corporate income tax purposes.”
“This allows many foreign companies to avoid a South Africa corporate income tax liability by relying on relief offered in terms of a double taxation agreement between the foreign country and South Africa.”
Responding to the allegations, a Google spokesperson said: “Google complies with tax laws in South Africa and every country where we operate. Under current rules, VAT reporting and remittance is the responsibility of our advertisers, who pay the same rate when they advertise with Google or any other company.”
In response to the claim about payroll tax, Google said: “We pay PAYE tax for every employee we have in SA”.
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