Google: UK politicians demand tax investigation

Google: UK politicians demand tax investigation

Summary: The search giant should be investigated by the UK tax authority HM Revenue and Customs over its approach to paying taxes in the UK, says a report by a parliamentary watchdog.

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TOPICS: Google, Government UK, EU
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Google should be investigated by the UK tax authority HM Revenue and Customes (HMRC) over its tax affairs, according to a parliamentary watchdog.

The search giant came under heavy criticism from the UK Public Accounts Committee (PAC) today for only paying $16m in tax to HMRC on turnover of $18bn between 2006 and 2011.

Google achieved this by basing its operations for Europe, the Middle East and Africa in Ireland, which has a corporation tax rate of 12.5 percent, less than half the 28 percent rate in the UK. It then reduced its Irish tax liabilities by sending cash to Bermuda via a Dutch holding company.

"Any common sense reading of HMRC's own guidance and tests suggests HMRC should vigorously question Google's claim that it is acting lawfully," says the Public Accounts Committee report, published today.

"HMRC should now fully investigate Google in the light of the evidence provided by whistleblowers."

The PAC challenges Google's assertion that while it employs about 300 people in the UK to "promote" Google's services, no UK employees can execute a trade, and therefore revenues it generates through sales of advertising to UK customers are not subject to UK corporation tax.

One "whistleblower" wrote to the PAC claiming to be a former Google salesman based in the UK. He said that Google set him "sales targets" and that he was paid commission for sales of ads to UK customers, with that commission accounting for some three to four times his basic salary.

When it comes to selling ads to UK customers, Google employs UK-based staff with "sales" in their title, who have "sales skills" to carry out "functions of sales", an earlier hearing of the PAC was also told.

"Google's reputation has been damaged by these revelations of aggressive tax avoidance. That damage will not be repaired until the company arranges to pay its fair share of tax in the country where it earns the profits from the business it conducts," said PAC chairwoman Margaret Hodge.

The PAC report also calls on HMRC to take general action against big business, calling for it to be "much more effective in challenging the artificial corporate structures created by multinationals with no other purpose than to avoid tax".

To help tackle the problem of tax avoidance globally HMRC and HM Treasury should "push for an international commitment to improve tax transparency" the report says. This commitment should include "developing specific proposals to improve the quality and credibility of public information about companies' tax affairs", and be used "to collect a fair share of tax from profits generated in each country".

Large accountancy firms are also singled out for criticism in how they advise corporations over tax matters, with the report calling on professional accountancy bodies to "emphasise the importance to accountancy firms of behaving responsibly in selling tax advice to clients, and in reaching audit judgements on the substance of their clients' UK operations and structures".

A Google spokeswoman said: "As we've always said, Google complies with all the tax rules in the UK, and it is the politicians who make those rules.

"It's clear from this report that the Public Accounts Committee wants to see international companies paying more tax where their customers are located, but that's not how the rules operate today."

A spokesman for HMRC said it couldn't comment on whether it would open a fresh investigation into Google's tax affairs. In a general statement Jim Harra, head of business tax for HMRC, said: "Since 2010 we have collected over £23bn in extra tax through challenging large businesses tax arrangements. We relentlessly pursue businesses who don’t play by the rules, these results reflect this."

Topics: Google, Government UK, EU

About

Nick Heath is chief reporter for TechRepublic UK. He writes about the technology that IT-decision makers need to know about, and the latest happenings in the European tech scene.

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10 comments
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  • Political Investigation, Or HMRC Investigation?

    Surely HMRC's job is to enforce tax law as it stands. And whose fault is it that the law stands as it does? Surely the politicians', right?

    Unless they think HMRC has been remiss in its enforcement of the law. In which case, what good is it to ask HMRC to investigate itself? A higher-level investigation is needed.
    ldo17
    • Read the article again

      The committee is questioning if google is lying about direct selling within the UK. Their whistle blower was UK based and claims to have been set sales targets. This would mean that Google are legally required to pay tax on such sales.
      Xippy
      • Re: questioning if google is lying

        Surely if the law is being broken, HMRC can already prosecute. They don't need politicians telling them how to do their job.
        ldo17
        • Maybe they do

          Are HMRC doing their job? I don't know. Best way to find out would be an investigation. And a parliamentary committee has every right to state an opinion. Part of their elected responsibility is to provide oversight of public offices and departments of state. HMRC is one such department.
          Xippy
          • Re: And a parliamentary committee has every right to state an opinion

            By all means, if that opinion is "HMRC should be investigated for not doing its job". Which doesn't seem to be the case here: instead, it's "HMRC, find some way to squeeze more tax out of these people, regardless of what the law says".
            ldo17
        • Yeah the argument has moved on

          Now it's whether google actually evades tax rather than avoids. Their published structure has been developed to make full use of tax avoidance loopholes. The whistleblowers are suggesting google have lied about their transactional structure for sales location, which would push them firmly into the realms of tax evasion.

          While I fully support going after google if they have illegally evaded tax, I still find it hilarious that our politicians can stand up, with a straight face and push the moral high ground. I've not seen any reports of our MP's not raping the tax loopholes for all they're worth, after all, surely they shouldn't pay as little tax as possible, that wouldn't be following the spirit of the law now would it.
          Little Old Man
  • Dishonest MP's should investigate themselves.

    All our dishonest politicians are pretending to 'investigate' this - but they ALL know that Google, Stemcor, etc. pay full EUROPEAN tax UNDER EU LAW. They will never mention the EU, or the fact that a company operating in Europe can choose where to pay their tax, and many do so in Lichtenstein or Ireland, or even, sometimes, in the UK, to avoid the higher German / French taxes.
    And, if any company should be investigated, they should start with Stemcor, which pays the minimum of UK tax, but is owned by the family of our Labour MP for Barking, the Chair of the Public Accounts Committee, no less! Talk about 'pot' and 'kettle'!
    lojolon
    • Wow, you must be really important!

      "but they ALL know that Google, Stemcor, etc. pay full EUROPEAN tax UNDER EU LAW"

      Clearly you're so important that they've given you access to investigate this whistleblower else how could U make that statement? You must be a friend of the Queen or something.
      Xippy
      • We're all friends of the queen

        Didn't you know, we all meet regularly with the queen in a big party in hyde park.

        Tbh though, if someone asked who had least morals, starbucks, MS, google, apple or politicians, I'd probably say our politicians. I can only presume Maggie Hodge has an audit trail to confirm why they pay no tax.
        Little Old Man
        • XAT is backward

          An Important area seems to be missed, why would anyone want to pay that amount of Tax? Would you say our Government is greedy, we’ll I would. If Google ran their financial Infrastructure like the UK government they would have gone bust years ago. Maybe it’s time to limit the amount of Tax burden for any company and for the Government to restructure itself, to spend money wisely and not to blow everything it has. Google wouldn’t have a problem paying Tax and setting up legitimately if the system was ’fair’! Why would anyone have the incentive to setup business in the UK, especially new businesses? There should be a new policy, Tax Cap!
          cuffyx