Google may face Parliament over tax avoidance scheme

Summary:After it emerged that Google paid roughly 1.5 percent tax last year in the U.K (the average household pays 10-20 percent), the search giant could be pulled up in front of Parliament to face questions.

Only weeks after Google was lambasted for retaining wireless network payload data from the search giant's Street View cars, the company is about to face yet another critical juncture in its history in the country: this time over tax.

British member of Parliament (MP) John Mann, a member of the U.K. government's Treasury Select Committee, wants to bring Google executives in front of the politicians' panel to answer questions as to why it paid only £6 million ($9.4m) on a total revenue of £395 million ($619m) last year.

That's just over 1.5 percent tax in a single year. By comparison, I pay roughly 40 percent in income tax alone. Go figure. (Once again, cheers for that, Gordon.)

Google's albeit legal tax avoidance scheme as "entirely improper and immoral," Mann told The Independent. "I think it would be highly appropriate to pull a Google executive in front of the Committee to justify their failure to pay proper taxes."

Mann said Google executives could be grilled by the Select Committee "before Easter." 

The system works like this:

Google Ireland employs London-based Google U.K. as an agent, so any sales made in the U.K. ends up in Ireland where the tax rate is far lower -- around 12.5 percent. A commission of around 10 percent is paid back to Google U.K. which is then taxable after costs have been deducted. This is known as doing a "Double Irish," (which sounds like more of an Android codename than anything else). Then Google Ireland pays its Bermuda-based office a licensing fee to ensure that the vast majority of Google's revenues are stored in an off-shore tax haven.

And yet this is legal. Completely 100 percent legit. 

A Google spokesperson told ZDNet today in a regurgitated statement from last week that it does "comply with all the tax rules in the U.K." Earlier this year, in an emailed statement to sister-site CNET, Google said it had an "obligation to our shareholders to set up a tax-efficient structure."

Google isn't the only firm under the spotlight. Both Amazon, Apple, and Facebook have been criticized by politicians and the government alike following similar cases that emerged as early as 2010

Earlier this year, Apple U.K. paid around £10 million ($15.9m) in the Treasury's kitty on earnings of £6 billion ($9.5bn), roughly equating to less than 0.2 percent.

Amazon also circumvented U.K. tax laws -- entirely legally -- by setting its U.K. firm up as an "order fulfilment" company, with its sales operations based in Luxembourg, a land-locked tax-haven. In 2010, Amazon U.K. paid £147 million ($232m) in tax on a revenue of €7.5 billion ($10.2bn) -- around 1.4 percent in total.

Sending a Google executive (or five) to a U.K. select committee won't help if it's ultimately a European problem, as is the case with all three technology firms mentioned. 

"We should be ensuring first of all that this is not possible across the E.U. There is no point being in if you can tax dodge." Plus, considering we 'own' Bermuda and pay for its defenses, Mann argues we are "paying twice."

Good point, well made.

Topics: Government : UK, E-Commerce, Google

About

Zack Whittaker writes for ZDNet, CNET, and CBS News. He is based in New York City.

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