Google faces tax review as HMRC told to clamp down
By Nicole Kobie
Posted on 3 Dec 2012 at 09:13
Six years of Google's UK tax returns are under review by HMRC following an MPs' report into tax avoidance tactics.
Last month, executives from Amazon, Google and Starbucks were called before the Public Accounts Committee, which is investigating the £32.2bn "tax gap" created by multinational corporations using loopholes to reduce their UK tax bills.
"Global companies with huge operations in the UK generating significant amounts of income are getting away with paying little or no corporation tax here," said MP Margaret Hodge, chair of the committee. "This is outrageous and an insult to British businesses and individuals who pay their fair share."
We expect HMRC to prosecute multinational companies who do not pay the tax due in the UK
The PAC added: "We expect HMRC to prosecute multinational companies who do not pay the tax due in the UK."
Google bills all online advertising via its European head office in Ireland, and at the hearing, Google's vice president of operations for Northern Europe, Matt Brittin, said his firm uses tax havens including Bermuda to increase shareholder value, but said the company obeyed the letter of the law. Last year, it posted £395m in revenue and paid £6m in UK taxes; however, a US SEC filing showed it made sales attributable to UK addresses of $4bn (£2.5bn).
The subsequent report from the PAC now claims Google is under investigation. "HMRC is currently carrying out a review of the tax returns filed by Google UK for 2005-11 inclusive and Google told us this is standard practice and that it is co-operating fully with that review," it claims. Google said it had no further comment on the issue.
Google had argued that its profits should be taxed where it created the technology - in the US - claiming little engineering work happens in the UK. That despite Google's own careers site stating that London is "one of Google’s largest engineering operations in Europe".
Richard Murphy, a tax expert and campaigner, said the likelihood anything would change because of the review was "close to zero", saying HMRC was "far too half-hearted" at dealing with such issues.
"I can see almost nothing is going to change... unless we have something much more substantial to go on," he told PC Pro, saying he'd like to see the tax agency be "substantially more robust" at dealing with avoidance techniques, such as transfer pricing.
Hodge agreed, saying HMRC needs to be more "aggressive" and that "policing the tax system must be at the heart of what HMRC does". However, Murphy suggested significant change wouldn't happen until new management takes over at HMRC.
Meanwhile, Amazon's representative at the hearing, public policy director Andrew Cecil, was called "evasive and unprepared to answer legitimate questions on the company's structure and the true location of its economic activity".
As PC Pro previously revealed, Amazon.co.uk is considered a "fulfilment" company for the European branch of Amazon, which is based in Luxembourg, and paid £1.8m in tax last year.
However, the evidence submitted to the PAC showed £3.35bn in sales were from the UK - 25% of Amazon's sales outside of the US.
"Yet Amazon has over 15,000 staff in the UK, invoices UK customers from the UK, hires UK staff in the UK, has inventory physically in the UK for UK customers and to all intents and purposes has the majority of its economic activity in the UK, rather than in Luxembourg, but pays virtually no corporation tax in the UK," the PAC report said.
Unlike Google, the report didn't say HMRC Had immediate plans to review Amazon's taxes. However, it did note: "Amazon has received an assessment from the French tax authorities which it disputes."
A statement from the firm said: "Amazon pays all applicable taxes in every jurisdiction that it operates within. Amazon EU serves tens of millions of customers and sellers throughout Europe from multiple consumer websites in a number of languages dispatching products to all 27 countries in the EU."
The PAC stressed that the three firms named in the report weren't the only ones using tax avoidance techniques - and said HMRC needed to do more to tackled the problem. "Both HMRC and corporate taxpayers are failing to meet the legitimate public expectations from the tax system," the PAC said.
Will make no difference
Nice summary Nicole.
I agree with Richard Murphy. These companies are taking advantage of legal loopholes and are obeying the letter of the law. The HMRC investigations are a waste of time until the law is changed.
By PlanetOfTheGrapes on 3 Dec 2012
I agree with PlanetOfTheGrapes, until the law is changed, nothing will happen.
Unless somebody at Google has been sloppy somewhere with the accounts, the HMRC won't find anything that they can fine them for.
The PAC need to look to the Government to block the loop-holes, if they want the money to stay in the UK.
On the other hand, UK based companies have been doing the same thing in reverse with other countries around the world, ensuring that sales go through tax havens and the local subsidiaries in different countries make as little profit as possible.
By big_D on 3 Dec 2012
Why only refer to Google
Pretty much all multi-national companies use the loopholes, so why is Google singled out?
By tirons1 on 3 Dec 2012
Amazon cannot have its cake and eat it!
If, as it wants to imply, it is an EU single market operation, how come it has different sites for each country, locked to language and offering differing prices?
I would be sympathetic to Amazon's position if it operated a unified EU site with multiple languages and the same prices regardless of country.
By JohnAHind on 3 Dec 2012
Surely nobody is surprised
...or even shocked by this.
The hugely ironical thing (sorry USA) is that these clowns claim to be "providing employment" and paying VAT and other "local" taxes. They (like their UK counterparts) also claim that Income Tax, NI etc. paid by employees is somehow contributed by the Corporation.
As our Yanqui confreres might ask; "Go figure".
Just like all the meaningless & empty rhetoric which has been fired at Bankers, this little flurry will pass when it's politically expedient.
Then, as with the Banks, (think "quantitive easing") it'll be business as usual with
"We few, we [un]happy few, we band of brothers.." stumping up taxes to support multinational companies too greedy even to pay a living wage to many of their UK employees.
Not only do they "avoid" paying UK taxes, they subsidise their operations with such low wages that the employees are forced to claim benefits, just to live....
As long as we are all prepared to be duped by the "competitive global market" schtik (WOT, we'll all go to China to buy our lattes, Kindles and so-forth?) and permit these people, aided and abetted by our political classes, to ride roughshod over all values of integrity & decency, nothing will change.
Whoever you vote for, you always get "Them".....
By wittgenfrog on 3 Dec 2012
"The £32.2bn "tax gap" is mainly uncollected VAT.
By MickGJ on 3 Dec 2012
@wittgenfrog - note that National Insurance _is_ paid by both employees and employers. Statutory Sick Pay is also paid by the employers to their staff when sick - if they did not, the state (i.e. the taxpayer) would have to provide that amount of money up to the level defined by the SSP scheme. I also hope you have the statistics to back up your statement that "many" employees of multi-nationals need to claim benefits. I note you said "many", not "some".
By AdrianB on 3 Dec 2012
Of course these companies pay various taxes, nobody is disputing that. However should Amazon suddenly disappear, and\or Starbucks get flushed down the drain along with the grounds, someone else would appear to provide those services.
These 'new' companies (or multitude of small businesses) would also pay all the Employers' NI etc. They might see fit to cough-up a bit of Corporation Tax for the privilege of operating in our secure, law-abiding country....
Unlike manufacturing widgets, you can't easily off-shore flogging milky coffee, nor selling by mail-order. I can't see anyone hopping on a slow boat to China to grab latté, nor hanging about waiting for their goodies to arrive from Malaysia, or Vietnam...
By wittgenfrog on 3 Dec 2012
One of the ironies here, is have a parliamentary committee having a go at companies who are operating completely within the law as it stands, accusing them of moral transgressions, and insulting and outraging UK companies.
These would be the same MPs who when caught up in their completely and entirely immoral screwing of the parliamentary payments and allowances system claimed that they had done nothing wrong.
On one side companies are fully compliant with the law, on the other MPs were in effect committing fraud of a blatant and illegal kind, but most managed to get off because of loosely written parliamentary guidelines rather than because they hadn't broken the law. Only a small minority faced criminal charges although a tougher stance could have seen the Commons more than decimated.
The current crop/generation of MPs have no public legitimacy when it comes to scrutinising other parties. And the previous Labour government are even fouler with their revolving doors from ministries straight into industries they were lenient regulators of.
Parliament needs a full clean sweep and disinfection of the current members who seem to forget that the purpose of being an MP is public service, and not to line your own pockets.
By Phoomeister on 4 Dec 2012
Its a simple equation.
Taxes pay for things like the Police, Roads, schools, Universities, Hospitals, The Military, etc etc.
As far as I know, Amazon makes extensive use of several of these, as do both Starbucks & Giggle.
These companies directly profit from having the sophisticated infrastructure and corruption-free (mainly) business environment which it provides.
They, like the rest of us, should contribute to the provision and maintenance of that infrastructure.
Just because a few MPs fiddled their expenses, it doesn't take away the legitimacy of the system, nor their right to comment upon abuse.
For myself I'm pretty unimpressed by politicians but would you prefer the Taliban? (cheap shot I know)
By wittgenfrog on 4 Dec 2012
It's not as simple an equation as you would like to make out.
What they do is legal, and frankly from what I can make out, exactly how the EU intended its common economic union to work in terms of tax.
If the UK government wants companies to pay more tax in the UK, they have a couple of avenues open to them:
1) They could raise corporate taxes, which just makes these arrangements more attractive;
2) They could lower corporate taxes, which would make these arrangements less attractive;
3) They could simplify the fiscal regulations which could make the Uk a more attractiv eplace to be domiciled;
4) They could work internall and with the EU to close down existing loopholes.
5)They can just bitch and moan about companies that have a fiduciary obligation to their shareholders to maximise profit.
By Phoomeister on 4 Dec 2012
Unfortunately, despite all the bad feeling above, until the majority of British folk actually realise that they're being had by both government and big business, nothing will change. What we need is an "middle England" spring....
By TigerUnleashed on 4 Dec 2012
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