Google ‘made a choice to avoid tax’ despite what it claims

Google’s elaborate tax structures have been slammed by UK policymakers charged with getting to the bottom of the £130 million sum it recently agreed to pay on back taxes between 2005 and 2015.

The Public Accounts Committee (PAC) inquiry into the tax deal published its final report today, which said:

Multinational firms such as Google have made a choice to avoid tax, despite any claims they make to the contrary. Google told us that international tax rules are complex and that it just follows them. This is disingenuous. There is nothing in the rules that says you must set up two companies in Ireland and send large royalty payments, via the Netherlands, to a company that is tax resident in Bermuda.

The PAC found that “the tax return was wrong — which it clearly was in this case,” particularly given that the UK is Google’s second largest market, contributing over $7 billion – or 10 percent of worldwide revenue – in 2015 alone.

But it admitted it’s very difficult to prove this was down to insufficient care taken by the company, a key defence for this kind of activity.

The reasonable care defence will be removed from law if the Finance Bill 2016 is passed by parliament. “We expect HMRC to implement these changes as soon as possible and enforce them rigorously,” the committee said.

Impossible to judge

On the specific amount of cash in question, the committee said it was “impossible to judge whether HMRC has settled this case for the right amount of tax.”

It has recommended that the UK government considers changing the rules on “corporate taxpayer confidentiality to make the tax affairs of multinational companies open to public scrutiny.”

The committee also urged the government to lead the way on “pressing for changes in international tax rules to prevent aggressive avoidance by multinational companies.”

Google’s business model is not novel. Many multinational companies are internet based companies making online sales and the tax system needs to catch up.

The investigation into Google’s affairs started way back in 2010 and although it has not been revealed how much the “very expensive” investigation cost, the committee wants to see new penalties imposed on companies that waste time.

Finally, it says the government should to re-open the Google tax case if new evidence comes to light, especially as ongoing investigations in France and Italy look set to bring in more cash that the UK tax man.

This is unlikely to be the end of the discussion on the company’s tax affairs, particularly given the EU revealed last month that it too is considering an investigation.

We have reached out to Google about today’s report and will update this post with its response.

➤ Corporate tax settlements [Parliament.UK]