​Google to pay UK government £130m back in taxes

Following an inquiry into Google's tax arrangements, the company has agreed to pay 10 years' worth of tax back to the UK government.
Written by Aimee Chanthadavong, Contributor

Technology giant Google has agreed to pay the UK government £130 million back in tax, following an inquiry into the company's existing tax arrangements.

Her Majesty's Revenue and Customs (HMRC) will be reimbursed for all the missed taxes that Google has not paid for the last 10 years. This will be in addition to a new tax arrangement the HMRC and Google have agreed to.

"We have agreed with HMRC a new approach for our UK taxes and will pay STG130 million, covering taxes since 2005," a Google spokesperson said.

"We will now pay tax based on revenue from UK-based advertisers, which reflects the size and scope of our UK business.

"The way multinational companies are taxed has been debated for many years and the international tax system is changing as a result. This settlement reflects that shift and is in line with recent OECD guidance."

However, Labour chancellor John McDonnell has criticised the deal the UK government has made with Google, saying it's a "derisory" settlement and has called for the National Audit Office to launch an inquiry into the deal.

The shadow chancellor also said he would be demanding details of the deal from Chancellor George Osborne in parliament on Monday and criticised the HMRC for agreeing to recoup a "relatively small amount".

"It looks to me from all the independent analysis that this is relatively trivial in comparison with what should have been paid," he told BBC Radio 4's Today program.

Meg Hillier, who chairs the Commons' Public Accounts Committee (PAC), will call Google and HMRC figures before MPs to explain the deal, which she said showed the taxman "admitting it pulled in too little tax from Google for nine out of 10 years".

"The news that Google is paying 10 years' back tax vindicates the Public Accounts Committee's vigorous pursuit of international companies that were running rings around tax officials," the Labour MP said.

"We were shocked to learn of workarounds of the tax system that were considered normal behaviour by big corporations but which appalled the individual taxpayer.

"HMRC now needs to assure taxpayers that it will keep up the pressure to tackle whatever the next emerging issue is in real time, rather than years later."

In March's Budget the Chancellor announced the introduction in April of a so-called "Google tax" targeting firms that move their profits overseas.

The "diverted profits tax" is designed to discourage large companies from taking earnings out of the UK to avoid tax.

Osborne described the payments as a "victory" for action on tax avoidance.

In 2013, the UK government launched a parliamentary inquiry into Google's tax avoidance, following demands by the HMRC over Google's tax affairs, which was under heavy criticism from the UK Public Accounts Committee at the time for only paying $16 million in tax on turnover of $1.8 billion between 2006 and 2011.

Then opposition Labour party leader Ed Miliband at the time accused Google of going to "extraordinary lengths" to avoid paying tax.

"I can't be the only person here who feels disappointed that such a great company as Google ... would be reduced to arguing that when it employs thousands of people in Britain, makes billions of pounds of revenue in Britain, it pays just a fraction of that in tax," he said in a speech back in 2013.

Google achieved this by basing 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 the employment of the so-called "double Irish sandwich" method of funnelling profits through its Ireland-listed company in order to pay a lower tax rate.

But in October 2014, the Irish government said it was going to phase out the loophole in its tax laws to prevent the likes of Google and Apple from avoiding paying corporation tax by 2020.

The tech giant has been similarly criticised in Australia for using this technique. Last April, executives from Google, Apple, and Microsoft confirmed they were being investigated by the Australian Taxation Office (ATO) as part of the Senate's tax avoidance inquiry. The inquiry found AU$31 billion was funnelled to Singapore within a year by 10 multinational companies.

During the same time, the Australian and UK government signed an agreement to form a joint working group to tackle profit shifting by multinational companies. The deal was to see Australia build on the UK's experience of introducing a diverted profits tax, commonly known as the "Google tax".

"We are going to work with them on their diverted profits tax, which is already implemented, but we are going to send officials over to the United Kingdom as soon as their election is complete, and we are going to together lead the world and ensure that we work with the OECD in developing the very best practices," former Australian Treasurer Joe Hockey told the ABC's Barrie Cassidy last April. "That will absolutely ensure that companies earning profits pay tax in the jurisdictions where they earn the profits."

Google has, however, previously told the Australian parliament it would prefer issues surrounding taxation of multinational corporations to be dealt with by the G20 or the Organisation for Economic Co-operation and Development (OECD), rather than have individual countries attempt to go it alone.

Despite Google's warnings, the federal government introduced new multinational tax avoidance laws that came into effect at the start of the year.

Under the new laws, multinational companies with annual revenue above AU$1 billion must report to the ATO's information on overall transfer pricing policies, and global allocation of income and economic activity in the business. Details of transactions between each Australian-based subsidiary and its associated overseas enterprises, along with the amount transferred and the business' reasoning for its transfer pricing determinations, are also required.

The new legislations also mean the maximum penalty for a company found to have engaged in a tax avoidance scheme has been increased to 120 percent of the amount owed, while using a profit-shifting scheme will attract a maximum 60 percent penalty.

Independent Senator Nick Xenophon said given that Google has agreed to pay back taxes in the UK, the Australian government could be potentially owed hundreds of millions of dollars by the company too, questioning whether Google has been adopting the same "ploy" in Australia.

"If Google hasn't been paying their fair share of taxes in the UK ... it's fair to assume there could well be problems here in Australia," he told reporters in Adelaide on Saturday.

The South Australian senator plans to question incoming ABC managing director Michelle Guthrie, a Singapore-based Google executive, about the issue when she takes up the gig at the broadcaster in May.

Senator Xenophon said it's clear that receipts of Google's advertising revenue, their biggest source of revenue, are often sent offshore.

"She (Guthrie) might be able to help us," he said.

During May last year, Google Australia reported it upped its tax contribution substantially in 2014, paying AU$9.4 million, or 16 percent, of its pre-tax profit for the year, and an additional AU$2.6 million adjustment for the prior year.

With AAP

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