'Unethical and devious': Google attacked by MPs over UK tax bill

'Unethical and devious': Google attacked by MPs over UK tax bill

Summary: The tech giant faced criticism from angry UK politicians during a hearing to why it only paid 1.5 percent corporation tax in 2011.

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Google was today accused of "devious" and "unethical" behaviour by a UK politician chairing a hearing about the amount of tax the tech giant pays in the UK.

The firm paid tax of £6m on UK revenues of £395m during 2011, a tax rate of 1.5 percent. 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.

margaret-hodge-labour-flickr
Public Accounts Committee chairwoman Margaret Hodge described Google's behaviour as devious and unethical. Photo: Labour Party/Flickr

Much of the hearing before the UK Public Accounts Committee (PAC) focused on whether the nature of Google's operations in the UK makes it liable to pay UK corporation tax on revenues generated by sales of adverts, specifically on whether Google's UK staff are "executing" ad sales.

"It was quite clear from the documentation from whistleblowers that the entire trading and sales process took place in the UK," committee chairwoman Margaret Hodge said.

When it came to selling ads to UK customers, Google employed UK-based staff with "sales" in their title, who had "sales skills" to carry out "functions of sales", the hearing was told.

Someone said to be a former Google salesman in the UK had written to the committee to say 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.

But the tech giant stood by its position that while it employed about 300 people in the UK to "promote" Google's services, no UK employees could execute a trade, and therefore revenues generated through sales of advertising to UK customers were not subject to UK corporation tax.

Matt Brittin, vice-president for sales and operations for sales and operations for Northern and Central Europe, said that while UK staff did carry out some "functions of sales", staff performing these functions were paid bonuses for "encouraging customers" to spend money with Google, not for completing sales.

"The way we operate is very clear. The UK team are promoting our properties and encouraging people to spend money with Google," he said. "People may feel they are selling, but no-one in the UK team can execute a transaction. No money changes hands, and there are very good reasons for this."

The bulk, or 99 percent, of Google's advertising sales to UK customers by volume were transactions through its AdWords platform and therefore required no involvement of UK staff, Brittin told the committee. However, that one percent of sales where UK staff did play a role were Google's biggest UK customers – the likes of BT, British Airways and Lloyds TSB – and accounted for between 60 and 70 percent of revenue, he said. These one percent of transactions would not be completed in the UK, but through Google's operations in Ireland.

John Dixon, head of tax for accountancy firm Ernst and Young, which acts as auditor for Google, refused to discuss Google's tax affairs but instead discussed when a hypothetical company operating out of Ireland and the UK would be liable to pay UK corporation tax.

An "Irish-resident company" would generally be subject to UK corporation tax if it were to trade through a "permanent establishment" in the UK that was "in a position to conclude trades that it habitually exercised", he said.

Hodge was scathing in her criticism of Brittin's account of Google's UK operations, asking Brittin how he thought the firm's approach to paying corporation tax looked to families and businesses struggling to get by.

"How do you think they feel every time they switch onto Google and it reminds them of devious, calculated and unethical behaviour in deliberately manipulating the reality of your business to avoid paying your fair share of tax to the common good?," she said.

"You are a company who say you 'do no evil', and I think you do do evil."

Topics: Google, Government UK

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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26 comments
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  • Unethical and devious

    Well put, this is how Google behaves everywhere...Unethical, devious, corrupt and evil.
    OwlllllNet
    • OwlllllNet....This is a witch hunt paid for by Microsoft & Apple

      End Of Story.....Period
      Over and Out
      • As we suspected you are just a troll

        Is this really fun for you? Are you like 12 years old or something?
        DontUseGoogleAtAll!
        • Challenger R/T....Like Microsoft & Apple are so above reproach

          They would squash anything in their path given the chance.

          Now take your 12 year old mentality and wake up as to what goes on in the world.

          End Of Story.....Period
          Over and Out
    • Yes google is an unethical company that does lots

      of evil. But this is not an example of such. The solution to this problem is for the UK and every other country to lower their corporate and personal tax rates to a flat 10% and scale back their nanny state governments to the size that will support. And since every country won't be doing this in unison the UK could be a huge winner if it does it before anyone in the EU. They would be flooded in an ocean of new tax revenue.
      Johnny Vegas
  • the gov should stop looking at google

    and start investigating the real tax dodgers M$ and apple.
    LlNUX Geek
  • Soooo.....

    Parliament write laws and then get mad when institutions read them carefully and craft their businesses to take advantage of loopholes therein. If they wanted the law to work another way, they should not have written it the way they did. It is incredibly disingenuous to be "angry" over Google's interpretation of the law.

    If the language of the law can be interpreted more than one way, then it is a matter for the courts, not indignation.

    Avoiding payment of taxes not owed under operation of the law is neither criminal or unethical. In fact Google has an ethical duty to their shareholders to afford themselves of every legal avenue to minimize their tax burden. In gray areas, undefined by legislation or case law, they have the duty to push the envelope, to get a full and final determination of any liability.
    txscott
    • Thank you

      I was going to post something similar myself.

      I am pretty sure MS takes full advantage of tax saving or deferral opportunities also, as does Apple apparently. Individual tax payers also do their best to minimize their taxes, within the law of course, as they should.

      Of course, idiots like Owlllllnet above have no clue as usual. I guess it is just a case of a slimy MS shill siding with slimy and opportunistic politicians when it suits him/her.

      I do think it is necessary for politicians to understand how these tax avoidances/deferrals are structured however, and to press for international cooperation and treaties to make sure unreasonable loopholes are closed. Various tax jurisdictions do compete for businesses to locate within their territory however, and favorable tax treatment is one way they do that. This "taxation problem" will probably never be eliminated.
      D.T.Long
    • Totally Agree

      I run my own small business in the UK, and guess what, I use every legal method I can to reduce my tax liability.
      As long as it's within the law as defined my parliament, then there is no problem. If the Government has a issue with it now they are short of cash, they should be amending the laws to close the loopholes.
      They won't because they don't actually want to push these companies out of the country, or upset their dinner dates with top executives.
      Boothy_p
  • Regetably ...

    ... UK politicians can't even fiddle their own expenses, let alone master the financial affairs of a global corporate or stabilise the economy :-(

    Why doesn't ZDNET, to a man, pillory these greedy corporations?
    Same as the politicians I expect: biased, vested interests and lack of integrity.
    jacksonjohn
  • LOL!

    Politicians crying about Google's "greed". Now THAT's the kettle calling the pot black!
    Hemo2
  • 'Do no evil' is a joke!

    When a corporation derives so much of their revenue from a country, but doesn't feel that they have an obligation to help support the systems and infrastructure that made that revenue generation possible, that is irresponsible.

    Google is not alone. Microsoft, GE and Apple are also guilty, as are many other corporations, in trying to drive a "race to the bottom" by moving intellectual property to countries with ever-lower corporate tax rates.

    Just as manufacturing has moved to countries with lower wage rates, only to shift to still other countries when wage rates start to rise, corporations are not concerned with how their behavior affects the citizens of the countries where they derive their sales. They act like deadbeat dads, who abandon their children and won't pay child support, while living high on the hog with record corporate profits.

    We need to have a discussion about how corporate revenue can be fairly, but not excessively, taxed. US corporate tax rates should probably be lower, but to pay only $1 in taxes on $40 of revenue as Apple did most recently in Australia (a 2.5% tax rate) is clearly NOT a fair contribution of corporate tax.
    DrTechnical.db
    • Actually, corporate taxes should be ZERO, because, they actually don't pay

      taxes. Whenever a corporation has to pay taxes, it's the consumer who ends up paying for those taxes, since a corporation will figure the taxes as an expense, and pass on that expense to the consumer in the price of goods and services from that company.

      It's sheer stupidity to believe that corporations should be taxed, or that they'll actually be the ones paying the taxes.
      adornoe
  • Tax is not a Contribution

    It is a matter of law, it is extracted by governments from individuals and corporations using personnel with badges and guns (if you don't believe that, try not paying tax). There is no fair. The practices are either legal or illegal. That's the way the rule of law works, people can read the laws, understand them and then adjust their behavior to conform or face the consequences. The beauty of this, in a country that respects the rule of law, is that the government is also bound by the law (which it got to make in the first place). If the law cannot be relied on there is no freedom only an arbitrary and capricious government.
    txscott
    • Unfortunately .....

      your knowledge and wisdom is lost on too many forum visitors. Thanks for your contribution however.
      D.T.Long
    • Tax evasion, not avoidance

      It appears however that Google have been misrepresenting their dealings in the UK and it seems that their activities would lead to a permanent establishment for their organisation here in Britain. Hence they should be liable for UK corporation tax. This is appears, according to information from whistleblowers, to be an accusation of tax evasion as opposed to tax avoidance.

      It would seem to be that when you have a large number of staff working in the UK and apparently performing the whole sales process, this is operating a business. Hence the position of the government. I do think the government are remaining within the law, but just as Google has done, using it to their best advantage.
      natedogg88
      • Common practice

        I think a lot of people commenting here would be surprised at how many sales units make little or no profit, quite often losses. Profits are 'made' by units in favourable taxation zones. It's not new and nothing google is doing is new. It will come down to the definition on transaction location that's all.
        Little Old Man
  • This is so common in the UK

    The former owners of my company did the same thing, base the company in Ireland to reduce their tax burden. All of our sister companies would sweep their cash into Ireland to reduce their tax burdens in the UK and other countries. Maybe the UK should lower their rate and that would actually increase revenue as there would be no benefit to moving off-shore.
    Thomas Kolakowski
  • The legislator's tendency

    1) Create laws with loopholes big enough to accommodate an 18-wheeler.

    2) Complain when people take advantage of said loopholes.

    3) Create issue to justify your incumbency.
    Third of Five
  • Last I heard

    They were pretty proud of the way they avoided taxes here in the USA.
    thekman58