MPs: Google ‘failing to pay fair share of tax’
Internet giant Google is criticised for “brazen” attempts to reduce its liabilities in the UK while HMRC and Britain’s accountancy firms are under fire for “helping clients avoid taxes”.
It boasts a culture of transparency encapsulated in the motto “don’t be evil”. But just weeks after it was implicated in the Prism surveillance scandal, Google has been slammed in a committee report for a “brazen” and “unconvincing” attempt to avoid paying its fair share of tax in Britain.
In a damning report MPs concluded Google has used “highly contrived” tax arrangements with the sole purpose of avoiding corporation tax on its multi-billion pound UK revenues.
But they also castigated tax authorities and accountancy firms, arguing that their role has served “only to help them avoid UK taxes”.
The internet giant had originally claimed that its tax model was fiar because the majority of its UK sales activities take place in low-tax Ireland. But the House of Commons committee dismissed as “deeply unconvincing” and concluded that the company’s account of its operations made “absolutely no sense”.
Change of mood
But it was not just Google under fire. Both the HMRC and Britain’s accounting firms were slammed for promoting a culture of complicated tax avoidance. Margaret Hodge, the chairman of the public accounts committee, said: “This committee has vigorously condemned the activities of the big UK accountancy firms in helping their clients find loopholes in legislation and establish highly artificial tax structures.”
The report said it was “extraordinary” that HMRC did not challenge Google saying that the reputation of Britain’s big accountancy firms had been damaged by “their substantial role in advising their clients on corporate structures and tax planning which serve only to help them avoid UK taxes”. Ms Hodge called for a recognition that “the public mood on tax avoidance has changed”.
The ‘big four’ respond
That was greeted with a mixture of admission and defence on Wednesday, with Google and several big firms suggesting that it was the rules that needed revising in order for practises to change.
In a statement, Ernst and Young, Google’s UK auditor, said:
“We do not promote artificial tax structures. We do not offer advice on tax evasion, non-disclosure or artificial schemes and would always refuse to act for companies requesting advice in this area. What we do is offer legitimate tax planning to clients, which is disclosed to HMRC and other regulatory authorities.”
Bill Dodwell, head of tax policy at Deloitte said:
“Tax advisors play an important role in the effectiveness of the tax system and exercise judgment in advising our clients…judgements change over time and we recognise today’s judgements are not the same as those reached a decade ago.”
Google’s reputation has been damaged… 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. Margaret Hodge
Kevin Nicholson, head of tax at Pricewaterhouse Coopers, said the company operated “under a clear code of conduct”:
“We will continue to engage in debate on what more needs to be done to build confidence in the tax system. We have long advocated greater transparency on the tax contribution of business and are helping more and more firms to provide more relevant information on their tax affairs.”
In a statement KPMG said: “The tax affairs of multi-national businesses, particularly in the digital age, are complex. In providing tax advice we have a responsibility to ensure a client pays the right amount of tax in the UK whilst taking account of their international tax position.
“The tax advice we give is governed by our Principles of Tax Advice which are regularly reviewed and updated to ensure the work we do reflects the changing environment.”
Political persuasion
A Treasury spokesman said: “This Government is committed to creating the most competitive corporate tax system in the G20, but this goes hand-in-hand with our call for strong international standards to make sure that global companies, like anyone else, pay the taxes they owe.
“The UK, along with Germany and France, has since last year been leading the efforts through the OECD to modernise the international tax rules and we have put tax and transparency at the heart of the G8 agenda which we will chair next week.”
Meanwhile Labour leader Ed Miliband has taken to Twitter.
Public Accounts Committee report shows Google goes to extraordinary lengths to avoid paying its share of tax in Britain. It needs to change.
— Ed Miliband (@Ed_Miliband) June 13, 2013
Revenues and taxes
The Public Accounts Committee said that while the UK was a key market for Google, generating $18bn revenue between 2006 and 2011, it had paid just $16m in corporation taxes over the same period.
The committee said that while Google defended its tax position by claiming that its sales of advertising space to UK clients took place in Ireland, the explanation was “deeply unconvincing on the basis of evidence”.
The report added: “It is quite clear to us that sales to UK clients are the primary purpose, responsibility and result of its UK operation, and that the processing of sales through Google Ireland has no purpose other than to avoid UK corporation tax. This elaborate corporate construct has damaged Google’s reputation in the UK and undermined confidence in the effectiveness of HMRC.”
A Google spokesman said: “Google complies with all the tax rules in the UK, and it is the politicians who make those rules. 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. We welcome the call to make the current system simpler and more transparent.”