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.
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."