24 January 2016
The big news this week is Google agreeing to pay £130m in back taxes after an “open audit” of its accounts by the UK tax authorities.
The payment covers money owed since 2005 and follows a six-year inquiry by Her Majesty’s Revenue and Customs.
It will be safe to assume that the inquiry has probably cost more than the £130m in lawyers and advisors, and that the tax represents a fraction of the company’s wealth it generates in the UK.
Google is one of several multinational companies to have been accused of avoiding tax, despite making billions of pounds worth of sales in Britain. It’s not a new subject on my radar and it’s great to see that whilst the amounts that they are paying are pathetic, moving forward the government is adopting a “sales tax” that looks at turnover generated inside the UK. It’s an idea I blogged about in 2012.
Despite the UK being one of Google’s biggest markets, it agreed to pay just £20.4m in taxes in 2013 from sales in Britain totalling £3.8bn.
Google has been criticised for its complex international tax structures and is not alone in its tax avoidance plan; it is one of a handful of international giants, including Microsoft, who locate their European headquarters in Ireland, because it has a lower corporation tax rate than the UK.
According to the Guardian (so it must be true), Google also used company structures in Bermuda – where the corporation tax rate is zero – to shelter profits. Whilst such structures are legal, and Google states “it has abided by international tax rules,” is this an adequate defence? What would happen if every UK business did this?
Whilst Google has now agreed to change its accounting system so that a higher proportion of sales activity is registered in Britain rather than Ireland, why on Earth does the UK government not insist ALL of its turnover generated in the UK is treated to our tax laws in the UK, like the rest of us?
Google pledges to pay more tax on sales in the UK in the future, but at the paltry percentage of 3.42% negotiated by our government, I see this as a big win for Google who must be high-fiving in the boardroom back in Silicon Valley. It’s not clear, but the percentage could be significantly lower as the Google representative says the £130m is for a number of years! This would mean that it is a fraction of one percent!
A blinkered HMRC spokesman said: “The successful conclusion of HMRC enquiries has secured a substantial result, which means that Google will pay the full tax due in law on profits that belong in the UK.”
The same spokesperson would possibly have done better if they’d referred to the profits and turnover of the whole business to calculate what is outstanding in the UK and looked at the proportions. They have clearly duped the government and this is purely a cosmetic victory for the UK.
Google, along with other US companies such as Facebook, Amazon and Starbucks, have faced heavy criticism for their tax affairs. I blogged years ago explaining that UKFast paid significantly more tax than Starbucks, and 300% more than Facebook in 2012, whilst Google paid £6m off £385m, a mere 1.51%.
People wonder why all of these businesses are able to expand so fast. Look at the resources they have at their fingertips.
Margaret Hodge, the Labour MP and former chairwoman of the Parliamentary Public Accounts Committee, described its tax structures as “devious, calculated and, in my view, unethical”.
Well said Margaret!
The point in all of this is that it’s not a level playing field. Would you allow an American boxer to have heavier gloves in a boxing match against a British fighter? Or allow an American Tennis player three points to every one a British player wins? Of course not, but this is exactly what is happening in business.
I recently read an article where it pointed out that Britain lacks a tech billionaire and that the US is full of them. Whilst this is true, in our defence when a sizeable share of your profits are handed over to the government, you have to make do with what remains.
If all UK entrepreneurs took advantage of the tax rules that apply to off-shore businesses, yes, they’d be able to accelerate their wealth, but Britain would collapse. It’s the SME tax-paying entrepreneur that props up this wonderful country.
So, in answer to Google’s response that they are only taking advantage of the rules and that it is all completely legal, fine, but as a British person, whilst I could do the same, I don’t because I care about the British people and the British economy. I want to build better hospitals and better schools. A better economy, a balanced economy made up of fair contribution.
I have a meeting with Google on Monday morning at my offices and I can’t help feeling aggrieved. Google is not the brand it once was. In my eyes it’s tarnished. It’s taken advantage of the UK population. It’s over diversified and its search results are a shadow of the heady decade of 2000. People use the internet differently these days and they have a good idea where they are going when they open their laptop, and even more so with phones since the explosion of Apps.
I am not the only one who is skeptical about Google’s recent press release saying it’s now contributing.
John McDonnell, Labour’s shadow chancellor, told BBC Radio 4’s Today programme it’s a “relatively trivial” amount of money and the agreement looked like a “sweetheart deal.”
Conservative MP Mark Garnier, a member of the Treasury Select Committee, made the understatement of 2016 and its only January, saying the agreement represents a “relatively small” amount of money compared with Google’s UK profits. We should possibly send Mark back to Maths lessons to work on his fractions!
The quote that riles me the most is from Matt Brittin, head of Google Europe, who said, “If we were British, we would make most of our profits in the UK and we’d be paying a lot more tax in the UK. The facts are we are an American company and that is where we pay the majority of our taxes, that is where we make the majority of our profits.”
Wow! “If we were British!” I think you can read between the lines. But what he fails to realise is that when you are British, you are less likely to want to disadvantage your own.
Before you start bashing the government on this matter, just remember that this has been going on for years. Through many governments, Labour and Conservative alike; it’s far from over in my opinion, but I do still think the way to deal with this is to buy British.
If you can trade with a UK company over a US or global one, BUY british. I love the fact the French buy French cars. They are so proud and, as such, have held on to their car manufacturing. We have lost ours, but it’s not too late to bolster the economy and create new wealth that stays in Britain and helps develop society.
Just remember every time you buy from a company that takes the money off shore, the country is worse off, significantly worse off.
Buy local if you can, but definitely buy British at all times where possible and take control of this issue. Some years back we chose to only buy services from clients who host with UKFast and we make a concerted effort to buy British at all times where possible. It’s certainly strengthened our business and also built up a great network of like-minded businesses who understand us and vice versa.
As a British entrepreneur I am proud to be a sizeable contributor to our economy. We can all be proud of what we are building together. Make Britain stronger!