Published on 27 Nov 2012

Google fights back on tax

As the tide turns on big corporations and tax, I challenge Google UK to show me in person the web giant’s contribution to Britain – and to argue the case tonight on Channel 4 News.

“We’re not accusing you of being illegal we’re accusing you of being immoral” cried Margaret Hodge, the increasingly combative chair of the public accounts committee. Matt Brittin, the Google VP, at whom the barb was directed looked a little fed up. Now normally Google doesn’t really engage on the topic of tax.

But the tide on tax has been turning. Google, Starbucks and Amazon have been lumped in together by politicians on all sides and accused of avoiding tax in a legal but morally wrong way.  Even Boris Johnson, the great defender of the the banks, had a pop saying it would be wrong to bring in a mansion tax on homes of the rich while people like Google were paying “zero”.  So I got in touch with Google with a proposition: show us Google’s contribution to Britain and argue your case on Channel 4 News.

Google products are free to British consumers at the point of use but British business pays around £2.5bn pounds for Google advertising services every year.  So some politicians and tax campaigners have been outraged to hear Google UK paid around £6m pounds in corporation tax last year. Even if you add payroll taxes for the 1500 workforce of Google UK it isn’t a lot. That’s because, according to the rules of the European single market, British businesses actually buy from Google in Ireland. Google UK acts as an agent, marketing Google services, for which it is paid an agent’s fee of around 10 per cent. That’s why Google UK’s reported revenues were just £395m.  Once allowable deductions are made profits can be a small fraction of that – and corporation tax is paid on profit, not revenue.

You might think “Ok, at least they pay tax in Ireland”, and they do. But not much more. That’s because, they say, Google is an American business and all the technology is designed and built there. Google Ireland doesn’t own any of that so it must pay Google in America a licence fee for the use of it. In theory that fee would be taxed in America, where corporation tax is double the rate in Ireland.

Read more: Can Google build a future beyond search?

Except that doesn’t quite happen either. Google Ireland ends up paying the licencing fee via a complex mechanism to Google in Bermuda, where the money sits not being taxed at all. Google points out it isn’t being spent either and when it is it will have to be brought onshore and taxed. But what that means is that the majority of the £2.5bn pounds spent by British business in a year is currently not being taxed at all. That’s why people are questioning the morality.

Over 24 hours or so Google’s VP in the UK Matt Brittin explained his argument to me. Not only, he says, is Google primarily an American business, but it should be judged by the whole contribution to Britain not just the corporation tax bill. That can broadly be broken down into the growth of British business through Google’s internet advertising, the impact on how consumers use the internet through Google products like search and YouTube, employment and investment in the digital economy and internet start-ups and corporate charitable spending. And that’s what he showed me. Whether it adds up to make you think they are acting in a moral way is the big question – and one for every viewer to decide for themselves.

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