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How much longer can Google escape the UK tax system?

money

By Nicole Kobie

Posted on 14 Aug 2012 at 12:42

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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User comments

Global tax system

the only way around it is to implement a global tax system, where the amount of tax paid is the same in each country - it won't work, until the "one world government" takes over.

On Google's side, they have a duty to their share holders to maximise profit - which means minimising the tax bill.

As long as countries allow such legal tax loopholes to exist and force companies to ensure that they fulfill their fudiciary duty to their share holders, they only have themselves to blame, when the companies choose the countries with the most favourable tax structures as their profit bases.

By big_D on 14 Aug 2012

Pay the tax + fine them

Nuff said.

By mrmmm on 14 Aug 2012

This story sounds very "Ivory Towerish" to most people, but the ad revenue that Google sucks in from UK media such as Newspapers and local TV or Radio used to be taxed in the UK; now it is not. That means the tax burden will increase on those UK taxpayers who cannot set themselves up as multinationals ie the ordinary man in the street. That means this kind of tax avoidance puts upwards pressure on YOUR tax bill, and increases the need for austerity spending.

Google isn't the only company doing this though, International Treaties allow all multinationals to do this, but as Vince Cable has been saying for a long time now, it is a growing problem for the UK and other developed economies.

Oh, by the way, there is no legal requirement for a company to maximise profits; it is only required they look afer the best interests of the shareholders, and this might be - as with German companies - that short term profits are less important than long term growth. The shareholders vote the Board in to manage the company and set strategy and tactics as they see fit.

By SwissMac on 14 Aug 2012

@SwissMac

Good, perhaps maximise profits was too strong a term, but if they don't use such "advantages" as offshoring their tax to cheaper regions, they could find themselves in hot water with the regulatory bodies around the stock exchanges.

By big_D on 14 Aug 2012

@mrmmm

They have paid all the tax they are legally obliged to and they have done nothing illegal, so they can't be fined.

The problem is the underlying tax laws. You can't fine somebody for obeying the letter of the law.

By big_D on 14 Aug 2012

Something missing from this article

Apple.

Apple’s estimated £6bn in UK sales in 2010 generated just £10m in tax, with its “Double Irish with a Dutch Sandwich” scheme. It almost makes Google look generous in comparison (£6m of tax on £395m revenue).

On top of that, it’s well known that the world’s most valuable company has a tiny setup in Reno to collect its profits because Nevada has 0% corporation tax (thus avoiding $2.4bn in US tax), and any iTunes purchase in Europe sells from Luxembourg with its “favourable” tax rates.

I believe that would at least earn Apple a mention in this article, don’t you?

By TheHonestTruth on 14 Aug 2012

How much longer can Google escape the UK tax system? Read more: How much longer can Google escape the UK tax system? | News | PC Pro http://www.pcpro.co.uk/news/376369/how-much-longer-can-google-esca

How much longer can Google escape the UK tax system?

Forever.

How much longer can you or I escape the UK tax system?

Never. Why would you want to, it would be immoral.

By cliffxdavis on 14 Aug 2012

Forever!

'Globalisation' is used specifically to facilitate the avoidance of tax and all other regulations by multinational corporations.

It works!

Big_D is quite right to note that Google et al have a 'fiduciary duty' to maximise profit, but it would be very simple to change the law to remove that requirement, or to demote it. This 'duty' is simply the fig leaf used by greedy people (like Steve Jobs, and Mr Schmidt) to pretend that they have no choice but to avoid their social \ moral responsibilities.
Don't you believe it.

By wittgenfrog on 14 Aug 2012

Have they done anything illegal?

I am most definately the last person who would jump to the defence of Google. However, they haven't actually done anything wrong here. They have simply funnelled their business through another country. This isn't tax avoidance and considering how cosy HMGovt are with Google they are unlikely to do anything (yes Google could soon be holding your medical records http://www.theregister.co.uk/2009/04/27/cameron_he
alth_records/) that will upset that relationship.

If you feel that hard done by Google, don't use them, at all. Change that search engine to Bing, throw away those google docs and use skydrive and Office365, dump your gmail and get on the outlook.com horse. That is the way things work, don't rant about their tax dealings, use or don't use their products, then they have their shareholders to deal with and they have far more power than rants.

By ScottishYorkshireMan on 14 Aug 2012

@big_D

The regulators are all National bodies, not International bodies; and there is no regulator who will punish a company for creative accounting within the law - their job is to prevent lies and fraud occurring. Whether a company chooses to set up a subsidiary to reduce their tax bill or not is irrelevant to a regulator.

By SwissMac on 14 Aug 2012

@big_D

You're absolutely right of course... Until the City changes its way of doing things (which will never happen as it's an "exclusive club"), we're all stuck I'm afraid.

By mrmmm on 14 Aug 2012

It simply tells me that the UK tax system is too expensive in comparison to the rest of the world and bacause of this we loose out on a lot of trade jobs and taxes which should be paid to the UK people.

By ChrisN on 14 Aug 2012

Bermuda is a British Territory

It is a bit rich the British complaining about Google using the Bermuda tax haven. Bermuda is a British Overseas Territory and is a tax haven with British consent. This has long been a bone of contention with the American tax authorities.

By JohnAHind on 14 Aug 2012

Above The Law

When corporations become as powerful as Google, they are truly above the law. Just look at the tax avoidance of eBay and Paypal.

Who is going to bring these companies to heel? And how can they actually do it?

Google is effectively THE INTERNET with a massive following.

By Splicer on 14 Aug 2012

Does anyone smell bacon?

Had to check outside the window for flying pigs. For once I agree with everything Swissmac has said.....

I don't feel well...

By CraigieDD on 14 Aug 2012

Perpetually. Or until the G# countries decide to do something about tax-pirate nations. Thus see my first sentence. £13 trillion secretly is hoarded in these places, see http://tinyurl.com/cr6gty6. THIRTEEN TRILLION POUNDS. In hard time, you'd have thought it'd be headline news across the world until the G# placed embargoes on these places to force them to at least put minimum disclosure laws in place. But due to top-politicians and global elites being thick as thieves, nothing happens. Did I mention £13 trillion?

By brendan on 14 Aug 2012

Not only tech industries

Boots, your friendly high street pharmacy moved its headquarters to Geneva. Can't think why...
I no longer shop there, but it is becoming difficult to avoid as more companies do the same.

By jonathandk2 on 14 Aug 2012

@ChrisN

The problem is each country in the world costs a different amount to run, and this money has to be raised through taxes. Take Luxembourg for instance: it's the size of Oxfordshire with the same population size as Cumbria and can afford to offer paltry tax rates to the likes of Amazon, eBay et all.

The solution has nothing to do with tax rates, but with changing the tax laws.

By SwissMac on 15 Aug 2012

This website really does reveal massively left-wing views when it dips its toes into politics.

To take 1/4 of a company's earnings (24%) and give it to a government [essentially a parasite that slowly kills its host with taxation, generates no wealth, creates no private jobs and exists just to expand] is a clear demonstration of the worst possible destination for money.

Ireland has recognised that it CAN get ahead by lowering its rate of tax and in doing so raise more revenue (counter-intuitive to a leftie I know), by attracting the best wealth-generating firms that 'grow-the-pie' and don't just want a slice of an existing shrinking one.

This is not Google's fault. This is a succession of UK chancellors' faults.

By Alperian on 15 Aug 2012

@Alperian

I wondered when the neocons who monitor these things would put in an appearance! Welcome.

I'm not going to bite on your silly 'parasite' analogy: believe that and you'll believe anything. What are your views on Black Helicopeters? Do you wear a tinfoil hat?

The simple truth is that 'rich' people are the ones who have most to lose when societies fail.
The whole 'Military Industrial Complex' (President Eisenhower) exists primarily to protect their huge assets, not our few meagre possesions!

I wonder if you condiser funding the Border Police or trying to supress terrorism to be 'parasitism'?

By wittgenfrog on 15 Aug 2012

Why can't all countries make it law that the tax paid is at the rate that the finished goods are delivered.
Then it would be less profitable to have an Irish base as if the goods are being delivered to the UK via Ireland then they would have to pay the Irish and UK taxes.

By curiousclive on 15 Aug 2012

TheHonestTruth

If Apple has revenues of £6bn its customers are paying £1.2bn in VAT. Well, I guess I should exclude the business customers in that.

The muddied point I'm badly trying to make is that the effect on the economy goes far further than revenues and profits alone. Both companies would put themselves at a competitive disadvantage if they voluntarily moved their business to a different country and paid more tax - although on the face of it Apple's profits are already immoral given the markups charged to gullible people who think they're getting a better product for their money.

*ducks flame war*

By baldmosher on 16 Aug 2012

Careful choice of words

I think you need to be a little careful with choice of words, the newsletter I received this morning from PC Pro had a line "Google can evade the UK's tax system". I think you may find they take exception to that - there is a difference between evading and avoiding. My understanding is that evading is a criminal offence and I'm not sure your legal team would thank you for suggesting Google has committed a criminal offence.

By silverous on 16 Aug 2012

Double Standards

Whilst MP's may call Google before the treasuary select committee I find it despicable that the PM choose to single out Jimmy Carr for making use of a similarly legal Tax avoidance scheme. It is about time that all tax loopholes were closed.

By DLinton99 on 16 Aug 2012

Domino effect?

The presence of Google in the UK is like a magnet for other companies. If Google decided to move elsewhere what else would follow? Perhaps we should be happy with the employment, both direct and indirect, that Google brings to the UK. What we could say to Google is 'Would you like to fund a project' - that could be anything that would benefit the economy to the extent that paying the tax would have done - or something that the public would would see as being beneficial. The advantage here would be that the project would be on-going and could blossom into something bigger and more lucrative/beneficial.

By technoboi on 16 Aug 2012

Reduce Their Benefits

It's easy to see "Tax" as an academic concern, but it's what pays for the schools, hospitals, roads that makes the UK function.
Who does Google think educated their staff?
If companies don't want to pay for the public services in their country then great, but they should receive no benefit either.
So if there's a fire at their lovely office, let them sort it themselves.
If they're robbed, don't send the police.
Charge them £50k for every graduate they hire to cover what we've spent educating their staff.
Similarly the RNLI should charge foreign-owned ships for rescues.
eBay & Paypal could be transaction taxed.
But will never happen as who pays political parties?
Every time a minister wants to look like they know what's going on they toddle over to be photographed at Google.
Google will not "move out" of the UK as need to be here. If they could outsource to India they'd have done it already.
The idea that governments are powerless in the face of global business is ridiculous - who did the banks & LandRover & the rest turn to when credit suddenly crunched?
The deliberate policy of giving power to companies is falling apart in banking as new corruption comes to light every day.
Governments COULD take control, but the will still isn't there.
Who is going to pay for Britain's public services in the future if business is allowed to simply walk away from it's responsibilities?

By Tony_Yeah on 16 Aug 2012

The big problem with Tax is, it goes to the Government, not the Country.

By Wilbert3 on 16 Aug 2012

EU could step in

This is one area where the EU is not a single market - huge differences in tax rates, especially corporate tax rates.
They could take steps here to some normalisation. not a single rate, but an allowable band. If a country then seeks advantage by going outside that band - the EU could sanction or withdraw other benefits to balance it out.

By richab on 16 Aug 2012

Double whammy for punters

To all those who wish to defend Apple, Google et al- Not only does the UK taxpayer have to pay more taxes, they also have to pay the higher VAT rates charged in Ireland.

So ultimately the customer pays higher taxes twice.

By imaginarynumber on 19 Aug 2012

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