Tech

Leila Abboud is a Bloomberg Gadfly columnist covering technology. She previously worked for Reuters and the Wall Street Journal.

Evan Spiegel, Snap. Inc.'s founder, has used his knack for sensing the zeitgeist to make Snapchat a hit among young people and entirely baffling to anyone over 30. The 26-year old has detected another trend as he plots Snap's global expansion: lower tolerance for aggressive tax planning in Europe.

Snap is setting up its European headquarters in London, which makes sense given that the U.K. is Europe's biggest online ad market. But instead of putting its people in London and its legal HQ in the usual low-tax country such as Ireland or Luxembourg, as other tech giants have done, Snap will play it straight. It'll book all its sales to British customers and revenue from any country where it has no local presence through the U.K. subsidiary, it told the FT.

Before we laud Spiegel as a paragon of virtue, let's remember the tide's turning against tax avoidance. Facebook Inc. and burger chain McDonald's Corp. have read the tea leaves and rejigged their European structures to rein in more aggressive practices that re-route sales through more amenable countries.

The Brits are lining themselves up to profit from all this in a post-Brexit world, as they flirtatiously lower their corporate tax rate from 20 percent to 17 percent by 2020. McDonald's, for one, plans to switch its non-U.S. tax base to the U.K. from Luxembourg, where its affairs have attracted legal scrutiny.  

Sliding Scale
When the U.K. corporate tax rate is lowered to 17%, it will put the country at the lower end of global rates
Source: The Tax Foundation

Action by the OECD and the G20 on avoidance is certainly starting to bite. European investigations into the tax arrangements of Apple Inc., Amazon.com Inc., Fiat Chrysler Automobiles NV, and Starbucks Corp. have spooked companies.

Some multinationals have had effective tax rates of 5 percent in Europe, but many now realize that those complex Double Irish and Dutch Sandwich structures have seen their day. Better to move now to a simpler regime in friendly countries where you'll still pay relatively modest tax. It eliminates risk and hassle.

Spiegel and others may be betting too on Britain becoming even friendlier to business post-Brexit. By most measures, it's already a good place to be. Corporate tax has been falling for about a decade. It's already lower than the 25 percent average of OCED countries. There's a flexible labor regime, treaties with other nations to avoid double taxation, and it lets holding companies move money around from subsidiaries without incurring tax.

Unequal Burden
Corporate tax rates vary widely among developed countries
Source: KPMG

It's yet to be seen how far Snap will go in routing profit through Britain. A spokesman told the FT that "at first" sales from France, Australia, Canada and Saudi Arabia will be booked in the U.K. That may have to change once Snap has more employees in other countries. Other governments won't be pleased to lose out on payments on their turf, or for Britain to just replace Ireland as a haven.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Leila Abboud in Paris at labboud@bloomberg.net

To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net