Google’s taxes under the search light again

By on June 20, 2013

The public accounts committee has singled out Google as one of the worst culprits on tax avoidance. But Google points out that it’s abiding by the law.

Google’s tax affairs hit the headlines again today, after the public accounts committee decided that the internet company’s tax arrangements are ‘deeply unconvincing’.

As the world and its mum is aware of by now, in the UK companies only pay corporation tax on the profits they derive from UK-based business activity (they still pay other taxes – ie PAYE, business rates, etc). And in the five years between 2006 and 2011, Google generated $18bn (£11.5bn) from business it does in the UK – but paid just $16m (£10m) in corporation tax.

Although, like most businesses, Google is unwilling to unveil its profit margin, that figure does seem to suggest a vanishingly small margin. Barely enough to keep Larry Page in socks and sandals.

Google claims that the reason it paid so little is because most of its advertising and sales activity took place in Ireland, where corporation tax is just 12.5% (compared with the UK, where it’s currently 23%). We do not want to cast aspersions on the Irish economy, but where in Dublin are the offices of these global media companies who are buying all the ads?

But the public accounts committee isn’t convinced. Margaret Hodge, its chair, says the tax arrangement is ‘highly contrived’, with ‘no purpose other than to enable the company to avoid UK corporation tax’.

This is far from the first time Google has been accused of such activities, so it wheeled out its tax spokesperson, who pointed out that ‘Google complies with all the tax rules in the UK and it is the politicians who make those rules.

‘It’s clear from this report that 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,’ he added.

That’s a fair argument , which is probably why the committee has also rounded on HMRC, accusing it of not being ‘more challenging of Google’s corporate arrangements given the overwhelming disparity between where profit is generated and tax paid’.

The committee also singled out the UK’s ‘big four’ accountancy firms saying that it expects them to ‘recognise that the public mood on tax avoidance has changed’.

This is all well and good, but as Google points out, companies’ main concern is keeping their shareholders happy. Mewing at large firms to start paying up won’t have much of an effect unless the government changes the law to back up its argument. But, given the economy’s dependence on big business, it’s not hard to see why Hodge et al are sticking to finger-wagging for now.

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