MPs Urge HMRC To Act On Google ‘Tax Avoidance’

Google has been heavily criticised over its tax arrangements in the United Kingdom by a cross party group of MPs.

In a report, the House of Commons Public Accounts Committee (PAC) accused the search engine giant of ‘aggressive’ tax avoidance, in order to avoid paying UK corporation tax.

Tax avoidance

“To avoid UK corporation tax, Google relies on the deeply unconvincing argument that its sales to UK clients take place in Ireland, despite clear evidence that the vast majority of sales activity takes place in the UK,” read the report.

The report stated that the UK is a key market for Google, but “the enormous profit derived is out of reach of the UK’s tax system”. It estimated Google generated $18 billion (£11.5bn) in revenue from the UK between 2006 and 2011, but only paid the equivalent of just $16 million (£10.2m) of UK corporation taxes in the same period.

“Google defends its tax position by claiming that its sales of advertising space to UK clients take place in Ireland – an argument which we find deeply unconvincing on the basis of evidence that, despite sales being billed from Ireland, most sales revenue is generated by staff in the UK,” said the report.

“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.”

Not tough enough

The report also urged HMRC to become more challenging of “multinationals’ manifestly artificial tax structures,” and said it is not being tough enough on international companies.

And the report refuted previous comments from Google’s Eric Schmidt that the company is acting legally.

“Any common sense reading of HMRC’s own guidance and tests suggests HMRC should vigorously question Google’s claim that it is acting lawfully,” said the report. “In contrast to evidence given to us previously, Google has also conceded that its engineers in the UK are contributing to product development and creating economic value in the UK.”

The committee, which is chaired by Labour MP Margaret Hodge, also pointed to the complexity of the international tax system as a problem, and called on the government to act. “We expect the UK government to take a leading role in modernising international tax law and welcome the government’s emphasis on tackling aggressive tax avoidance under the UK’s presidency of the G8.”

Whistle-blower

Last month a former Google employee revealed the extent of tax-dodging practices used by the Internet giant in the UK. Barney Jones, who previously testified before the Public Accounts Committee, told the Sunday Times that for nearly a decade, Google products were sold from the London office by local staff, but the sales were registered in Dublin to avoid paying UK tax.

Labour leader Ed Miliband has previously said he will write new rules to tackle corporate tax dodgers if voted in as Prime Minister, citing Google as an example of an “irresponsible” company.

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