Google may face Parliament over tax avoidance scheme

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.

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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

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19 comments
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  • fraud and theft...

    Could somebody enlighten that is there any part of google business still left that is not being accused of fraud?

    Here is the interesting twist in piracy related news....Google is going to punish pirate sites. What hypocrisy!!! YouTube became 'YouTube' because it was the biggest pirate ship...Now it want to kill other pirate ships...

    YouTube will still magically appear in the 3rd spot in search results no matter whatever 'algorithm' is changed.
    owllnet
    • While I'm no fan of Google

      they obviously aren't the only one doing things like this, and given it's apparently 100%, I don't see how this can be considered fraud. Countries need to address their corporate tax codes if they want to stop the legal shell games that allow this type of stuff to take place.

      I do have greater issue with the recent news where Google's going to punish piracy by demoting such sites in Google's search results. Search results should be search results. While I'm not an advocate of privacy, the bigger issue is companies like Google starting to play God and manipulating results because of corporate, political or social pressure. Once you start down this slope, it can get pretty slippery pretty quickly. Next thing you know, they'll be honoring Santorum's demands to remove certain pages from showing up.

      And, you're apparently correct about YouTube likely to still appear near the top, in spite of the vast and obvious piracy that goes on within YouTube. I read an article yesterday where Google basically funnels non-YouTube sites through one mechanism for filing a piracy complaint while YouTube (and I presume any other Google sites/services) go through another that is much more tedious to actually get to the complaint submission page. It's still there, but it appears that it will be much harder to file a complaint against YouTube than the average site. If I can track down the article, I'll post.
      TroyMcClure
      • Google was robbed 6 million pounds

        The right amount of tax they should pay is zero. Let's investigate and put an end to it.
        LBiege
  • "...And yet this is legal. Completely 100 percent legit..."

    So, what does the UK not understand about "And yet this is legal. Completely 100 percent legit.". Corporations are following the applicable tax laws. One may say it is not moral, but morality has nothing to do with law. Also, as stated they have an obligation to take care of their investors, you and I that own stock directly or indirectly through retirement plans.

    Folks get a grip. Corporations never have, never will pay taxes. Corporations are a tax collecting arm for governments. It is the end purchaser, you and I, that pay all the tax as taxes are passed on to buyers of products.

    If governments need to question anyone it is themselves. Again it reads: "...And yet this is legal. Completely 100 percent legit...", D'oh!
    BubbaJones_
    • Legality, ethics, morality, stability

      1. The reality that motality and ethics have nothing to do with the law signifies that you are living in a deplorable society: one that cannot claim any advances towards being civilised.

      2. The fact that you can get away with murder does not condone the crime.

      3. There is a test for financial stability which (simplistically) runs along the line of: "What happens if everyon does the same?". So if EVERYONE stops avoiding tax then our capatilaist society will collapse.

      4. Bubba - get a grip.
      jacksonjohn
      • Ahhh how sweet

        Blah blah blah deplorable society, it's the one we live in so lets not pretend there's some alternate utopian model we could easily follow.

        And your analogy is wrong. It's not getting away with tax fraud, it's not fraud at all. So if the law stated that under certain circumstances you could kill someone then it's not really murder (which is only a subjective term in law anyway) is it?

        Nice to have a completely theoretical argument but I suggest it's you that needs to get a grip and discuss the world we live in. Pretending we live in something akin to the little book of nursery rhymes, where all your friends live, is hardly helpful to a rational grown up discussion.

        Although I do congratulate you on your optimistic outlook that humans are 'better than this'. It's business, by definition morals can not be involved.
        Little Old Man
      • Open your eyes

        Oh, stop being flim-flammed by the politicians and their toadies in the press. The laws are the way they are because the politicians wrote them that way. They don't want all the jobs moving to Ireland, and neither do you.

        But most people don't understand any of that, plus they get goaded into a frenzy by journalists who call following the law a "scheme." That gives the politicians the excuse they need to mount the podium, ask beat-your-wife questions, and parade before the grandstands.

        Will they subsequently change the law? Of course not. They don't want all the jobs to move to Ireland. What they want is the opportunity to grandstand in front of the voters.
        Robert Hahn
        • You're so cynical it must hurt

          The tax laws are evolving, they don't change when the government does. The reason they are closing the loopholes is to stop money leaking out of the country when it should be going to the taxman. If you believe a single politician is bigger than the taxman then you deserve to live in cynical ignorance.
          Little Old Man
      • How many others "paying more"

        Google is following the tax law. Is the author knowingly choosing to pay more and not take all of his deductions? It has nothing to do with morals. The "moral" thing to do is to pay what you owe, not more than what you owe.

        John - you yourself need to get a grip.
        Harlon Katz
    • Don't disagree...

      but, as long as corporations are taxed, when they avoid taxes through loop holes and shell games (whether legal or not), that takes tax revenue away from the government services it was intended to support and puts it into the pockets of the corporations. Meanwhile, the price of the products and services consumers buy from these corporations doesn't necessarily drop just because the corps have pocketed this revenue. It seems that you either have to do away with corporate taxes or do away with the loopholes/shell games, otherwise, the consumer is getting bent over twice.

      But back on subject, this is likely more posturing than anything else. Between the WiFi data collection and the Safari private browsing fiasco, this just is another way to turn up the heat on Google and let them know they're being watched closely.
      TroyMcClure
      • well, hope you don't take your deductions

        Well, pious - I hope you are not taking your deductions when filing taxes (if you live in a place that has income taxes) as you are then taking tax revenue away from the government. Here in the states, you are allowed to deduct your state taxes paid from your federal income - that is a shell game that shifts the burden of high-tax states onto those of low tax states. There are many more deductions as well.
        Harlon Katz
  • And just how exactly is this not entirely parliments fault to begin with?

    They are the ones that have decided on their stupidly convoluted tax scheme to begin with. And they were the ones that decided to go with unfair business hostile rates to support their public socialism while at the same time trying to give loop holes to everyone of their cronies. Bermuda schmermuda, they'd just move it somewhere else. Put in a fair flat business income tax of 12% with no loop holes and watch both your economy and your tax revenue grow wildly.
    Johnny Vegas
    • That's a reasonably fair point

      however it's not loopholes that have been created by the government, it's loopholes left by the tax law writers. You physically cannot concoct rules to cover every situation and this is how tax avoidance works. Once the loophole is uncovered, it's quickly patched with further legislation but until then, it's not illegal. Don't forget, tax avoidance schemes are big business and as such, attract some of the best financial minds in the business to spot the loopholes in the first place. Financial minds that cost more than the tax man is willing to pay!
      Little Old Man
  • that's instigation from Google's lame competitors

    M$, Apple and Oracle have started this which hunt.
    LlNUX Geek
    • While I wish that was true

      I really don't think any of them want to stir up trouble relating to tax. Have you read the article above? Based on those figures, apple are even better at the tax game than google.

      Ultimately you need to have complicated tax rules for cross-border companies and most of the time, patching the holes, when spotted, is the best we can hope for.
      Little Old Man
    • Of COURSE they did...

      And they also convinced Samsung to use child labor... Maybe your axis of evil did start the witch hunt but Google was still wrong.
      athynz
  • It can't be solved in the UK

    Predatory corporation tax is an example of the tragedy of the commons. It benefits any individual country to cut corporation tax, since the increased FDI tends to more than offset the lost tax revenue. However, if everyone does it, then there is no gain to any. There is, however, a cost to all, in that corporations get away with not paying tax for the public services (education, health, security, etc.) they benefit from.

    If firms were all national, it wouldn't really matter. Any profit would eventually be taxed as shareholder income (dividends and capital gains). However, when corporate income goes to foreign shareholders, the corporation is able to almost perfectly free-ride on the public services in the countries where it operates. This problem may be solvable at the EU level, since the EU is currently the world's largest market, but it may need global co-ordination.
    WilErz
    • Playing hide-the-weenie

      The only reason to tax corporate income instead of imposing sales tax on the corporation's products is to hide the tax from the taxpayers in the prices charged for the goods. The end result is the same: the services get paid for. The difference is that with the corporate income tax, taxpayers blame Greedy Corporations(tm) for the high prices instead of Tax-and-Spend politicians.
      Robert Hahn
  • For the benefit of us clueless Americans...

    ...is the Treasury Select Committee a Parliamentary committee or is it a committee of the Privy Council?

    Your headline says that Google might face Parliament but then you mention the "government's Treasury Select Committee", which sounds like a panel of ministers, not of ordinary MPs.
    John L. Ries