16 May 2013

Google in the hot seat – but HMRC feeling the heat

Yesterday, Google was celebrating a first for the Internet search giant. As its developer conference kicked off in San Francisco, the company’s shares nudged above $900 for the first time, giving it a market worth of more than $300bn.

The fact Google is now one of the most successful, profitable internet companies ever is probably not something that Matt Brittin, Google’s boss in northern Europe, will be bragging about today and he sits down for his second grilling from MPs.

Why? Because at least some of that success is generated here, in the UK, where Google has in the past five or so years made $18bn in sales yet remarkably managed to pay just $16mn -yes that’s million with an M- in corporate income tax.

Mr Brittin’s argument has been that all UK sales are actually conducted from Ireland and that the UK office – the classic internet styled open plan space with chill out zones, colourful walls and well-stocked fridges – is really only a marketing centre.

‘Smoke and mirrors’

If the numbers don’t tell the full story, a recent investigation by Reuters tore Mr Brittin’s claims apart after it was shown that Google’s own UK website describes itself as a sales centre and advertises sales jobs, while its staff brag on LinkedIn about their sales prowess.

Amazon is engaged in the same kind of tax smoke and mirrors. In filings to US investors it said it generated £4.2bn in UK sales last year yet somehow managed to pay just £3.7m in taxes here. That nudged its overall tax take in the last decade here to the hefty sum of £6m.

And then there’s good old Goldman Sachs. The British anti-cuts group UK uncut had taken the HMRC to court to try and make Goldman pay back more than £20m in lost UK taxes paid as bonuses to bankers, but siphoned from London to the tax-free pink sands of Bermuda. They lost their case in the High Court this morning.

Of course these are all examples of sharp corporate practise. Of big business playing the system for all it’s worth by shunting bonuses or profits here and there to the lowest tax jurisdiction, when to anyone with any smidgen of common sense the actual activity that generated the sales in the first place was carried out here, in the UK.

HMRC to blame?

So to my mind, isn’t it the taxman, HMRC who is really to blame? In the case of Goldman, it even admits it was its own error that allowed the world’s most profitable investment bank to underpay tax. Then it did a sweetheart deal – closed and private – to claw some, but not all, of it back.

And as for Google. Even a basic search of the company’s website and LinkedIn demonstrates clearly the fine line it is treading between legitimate tax practise and deliberate and calculated avoidance. Mr Brittin is in the parliamentary dock this morning. But he’s closely followed by Lin Homer the boss at HMRC.

Mr Brittin should and will face tough questions from MPs. But those directed at Ms Homer should be even tougher.

It’s not enough to simply say Google isn’t breaking any rules. And if that’s the case then it’s time she leads the charge to change them.

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