​UK PM David Cameron under pressure to defend Google tax deal

The opposition Labour party is challenging the British Prime Minister David Cameron to defend the Google tax deal, which they believe is a "derisory" settlement.
Written by Aimee Chanthadavong, Contributor

British Prime Minister David Cameron has come under increasing pressure over a back tax deal agreed by Google that was hailed by his finance minister as a major success, but dismissed as "derisory" by the opposition Labour Party.

Labour leader Jeremy Corbyn challenged Cameron to defend the deal, which he said represented a tax rate of just 3 percent on £6 billion (AU$12.28 billion) of profits that Google, now part of holding company Alphabet Inc, has earned in Britain since 2005.

"Why is there one rule for big multinational companies and another for ordinary small businesses and self-employed workers?" he asked the prime minister in his weekly parliamentary question session.

Cameron did not comment on the £130 million settlement between Google and Her Majesty's Revenue and Customs (HMRC), which covers unpaid tax from 2005 to 2015. It brings the company's total tax bill to around £200 million for the period, during which it had UK revenues of around £24 billion.

However, Cameron said he had been genuinely angry over Google's failure to pay much tax, adding that this largely occurred when Labour was in power from 1997 to 2010.

Finance Minister George Osborne, seen as a possible successor to Cameron, has said the settlement was "a victory for the action we've taken" against corporate profit-shifting.

Google has said it paid all the tax that was due. It said it declares little profit in the UK because most of its profits are derived from innovations invented in the United States.

"We pay tax based on the value added by the economic activity of our staff here," a Google spokesman said.

Profits from European sales are reported in Bermuda, which has a zero tax rate.

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 their income, tax, and transfer pricing arrangements, otherwise they could face being penalised at a higher rate for tax evasion.

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.

Apple Australia, another company that has come under fire in the past for not paying a sufficient amount of tax, reported on Wednesday it continues to remain compliant with Australian tax laws, despite only paying AU$85 million of income tax on profit from the AU$7.9 billion in revenue it earned during the 2015 financial year for the period ending September 26, 2015, a 29.5 percent increase from 2014.

The company also reported total comprehensive income for the year was AU$122 million, down AU$50 million on last year's AU$172 million.

With AAP

Editorial standards