How much longer can Google escape the UK tax system?

14 Aug 2012
money

Google pays a paltry amount of tax in the UK. How long can it get away with doing so?

Every year when Google files its documents with Companies House, a fresh wave of outrage follows at the small size of its tax bill. The UK is Google's second largest market, with $4bn in sales coming via UK customers last year according to US filings. However, Google UK posted only £395m in revenue and paid £6m in UK taxes in 2011.

In a completely legal tax structure, if you buy an ad from Google, the contract isn't with the UK office, but with Google Ireland - which has a corporation tax rate of 12.5% compared to the UK's, which recently fell to 24%.

That means Google UK posts a relatively small profit, and often a loss, keeping its tax bill down. Google UK has failed to post any profit in the past three years, losing £24m in 2011, £27m in 2010 and £9.7m in 2009. In 2011, its tax bill was less than £1m, and in 2009 it was £2.9m.

With heavy public sector cuts and outrage over tax avoidance schemes, Google's skimpy tax bill is starting to grate. MPs are demanding answers and an online petition has gained more than 46,000 signatures.

John Mann MP, a member of the Treasury Select Committee, said it was likely a Google executive would be called before MPs, and told The Independent: "Whether it is illegal or immoral, the British taxpayer loses out."

Google's tax structure

Tax campaigner Richard Murphy points out that Google pays "pretty much the full tax rate that you'd expect" in its home country. "Outside the US, Google pays almost no tax," he said. "We’re talking single digits and low single digits most of the time, over the last several years."

There are two ways Google does this. First, non-US sales are predominately routed via Ireland, which has a lower tax rate and an "extremely relaxed" approach to taxation, Murphy explained. Second, its IP is held in Bermuda and licensed to other Google arms - meaning more money is pumped into the tax haven.

"It’s no doubt that what Google is doing is legal," Murphy noted. "Those who are arguing against this are saying that for a company that says 'don’t be evil' - and therefore implicitly recognises from the outset that it has moral choices to make in the way it conducts its business - in this case it's got this moral choice wrong.”

What can be done?

In theory, negative public sentiment could push Google to alter its tax structure, said Murphy. "Sentiment is clearly moving on this issue. Tax avoidance was once seen as smart. For a company completely dependent on consumer goodwill, it is a major issue," he said. "If they were a chip manufacturer that nobody has ever heard of, this would have no impact at all."

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