Google is to pay £130 million in tax to Her Majesty’s Revenues and Customs after a six year investigation into the tech giant’s financial practices, conducted by UK tax authorities. Google is one of a number of global companies that have been criticised for not paying the right amount of corporation tax in the UK. Most of these companies carry out business in the UK but have their headquarters elsewhere. Facebook and Amazon have also been accused of avoiding tax.
Google’s European headquarters are in Ireland, which has lower corporation tax rates than the UK. Google claims that none of its’ financial dealings with the UK have been illegal; the tech giant is primarily based in the U.S and pays the majority of its’ taxes there. Therefore while there is nothing unlawful about what Google is doing it has been accused of being unethical.
This most recent agreement with HMRC has not satisfied everyone, with many saying that Google is still paying the UK only a tiny fraction of the profits it makes here. The Tax Justice Network has estimated that Google should be paying £200m every year in tax, a sum which would accurately represent Google’s profit and sales figures in the UK. This estimate questions the validity of £130 million that HMRC have demanded and indicates a degree of leniency on the part of the UK government, which has declared its’ approval of the current figure.
The Chancellor of the Exchequer, George Osborne, has called the deal a “victory” while members of the Labour party have described the sum as inconsequential. Frustration has also arisen from the confidential nature of the deal with few details having been released about HMRC’s findings.
Google has stated that the amount agreed is in compliance with changing international tax law. Google has been keen to point out how its services have helped companies in the UK in the past, suggesting that it has been instrumental for the growth and profits of other businesses. A Google representative has said that its’ services will have more lasting value for the UK economy than any future tax returns the tech giant will make.
There is evidence to suggest that other multinational companies will be expected to follow Google’s lead. Osborne has already stated that other businesses should “follow suit”, and it doesn’t take much in the way of guesswork to figure out the other Silicon Valley darlings he is referring to. It was estimated that Facebook only paid £4,327 in corporation tax in 2014 whilst Amazon paid £11.9 million in tax in 2014, just a small fraction of the £5.3 billion it made through UK sales.
There has been a unilateral effort to tighten international tax regulations by the OECD (Organisation for Economic Co-operation and Development) which has put forward proposals that mean that more tax will be paid where the largest profits are generated, not where a company is based. National governments have begun to make moves against those companies that are mitigating domestic tax laws. For instance, a U.S Senate committee had previously flagged up malpractice at tech companies such as Apple, Microsoft and HP; it was claimed these tech firms had avoided paying income tax in the U.S and were transferring profits to tax havens.
Tax avoidance is a problem for the entire international business community with average global losses from tax mitigation estimated to be around $100 billion annually. This figure will only be significantly reduced after pressure is exerted from multinational organisations and regulators, and indeed there are encouraging signs that Europe has had enough. If national governments want to stay in control of their corporation tax returns, loopholes will have to be closed and irregularities smoothed out; it is hoped such moves will serve to incentivise all businesses to play by the rules and not make up their own.