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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7 reader comments

  1. Stephen Townsley says:

    Just tax turnover and not profit. Tax activity not where the money is paid. California does something like that and we should.

  2. Y.S. says:

    These companies want to just suck and take out of this country. I think people know what to do if they do business with them.
    Kick them out of this country, we dont want your type here.

  3. Steve Willis says:

    The way the Members of Parliament play the morality angle is interesting; Google abide by the tax rules enforced by HMRC, but are alleged to be behaving immorally by taking advantage of our unfair crazy system.

    I’m waiting for Google to turn around and claim the same Members of Parliament are behaving immorally by exploiting the advantages they enjoy in respect of Income Tax & National Insurance arising from a series of statutory exemptions & priviliges for Members of Parliament and Government Ministers.

    An example would be; MPs pay no Income Tax or N.I. upon expenses for European Travel. The rest of us non-Parliamentarians have to pay Income Tax & N.I. upon these.

    Perhaps, this is a breach of Article 14 of the Human Rights Act 1998 where we’re discriminated against upon the grounds of our “other status” as non-Parliamentarians? I wonder if HMRC will refund us all.

  4. Alastair Murray says:

    The following is an extract from Justine Nicol’s judgement in the UK Uncut case, which they lost but were clearly vindicated in bringing the action.

    The arrogance of HMRC in the select committee hearing today just shows how out of touch they are in addition to the litany of incompetence that is highlighted in this extract

    “The settlement with Goldman Sachs was not a glorious episode in the history of the Revenue. The HMRC officials who negotiated it had not been briefed by the lawyers who were litigating against Goldman Sachs. They relied on their belief or recollection that there was a barrier to the recovery of interest on the unpaid NICs. That was erroneous. HMRC accepts now that there was no such barrier. The officials who negotiated the agreement overlooked the need for approval from the Programme Board in relation to an agreement over £100 million. HMRC now accepts that they should have appreciated this. Because the officials did not have this requirement to mind, they said nothing about it to Goldman Sachs and created the impression that the agreement was a done deal by the end of the meeting on 19th November. HMRC accepts that was an error. Furthermore, HMRC did not appear to have taken a contemporaneous note as to the agreement which was reached on 19th November. That allowed a degree of uncertainty to prevail for a time as to what precisely had been agreed. In the end that has been resolved but in the course of the hearing, HMRC accepted that it would have been a good idea for a contemporaneous record to have been kept. Next, by his own admission, when he decided to approve the settlement on 9th December 2010, Mr Hartnett took into account the potential embarrassment to the Chancellor of the Exchequer if Goldman Sachs were to withdraw from the Tax Code. HMRC accepts that was an irrelevant consideration and should not have featured in his decision-making process.”

    1. Steve Willis says:

      HMRC act as if they have unfettered discretion even though they don’t.

      In the past I had to use Freedom of Information requests to force HMRC to respond to unanswered letters. I thoroughly recommend this technique to anybody waiting for HMRC to answer – it provides a formal audit trail for when you make a subsequent complaint.

      At one point I told HMRC I was thinking of complaining about their behaviours and their potential breaches of administrative law.

      Even though I had not formulated or made a complaint; HMRC passed my note across to their complaints team who rejected my note, telling me my complaint (which I had not submitted) was rejected.

      In another classic HMRC foul up; I rang the telephone number quoted in their letter. The ‘phone was picked up and slammed down again without a word being uttered. I later discovered the telephone number quoted by HMRC was for an incorrect team. Quite clearly, some poor HMRC employee was fed up with receiving calls.

      I don’t understand why some of the former Management at HMRC were not sacked, rather than be permitted to leave gracefully.

  5. nick clay says:

    Great piece Siobhan. Good to see you nailing the real villains: HMRC. I’m reading Richard Brooks’ ‘The Great Tax Robbery’ and it’s making my blood boil. But ultimately it’s the politicians who must take the blame, setting the rules to suit the City for decades. Now the rest of us are picking up the tab. I hope you’ll be really scrutinising what comes from the G8 on this issue, because we’ve had tough-talking rhetoric in the past but little substantial has changed. One simple way of dealing with the internet giants would be to subject them to UK tax if purchases are made through their UK website: either they remove all selling from .co.uk sites or they pay the tax. If you log into Google in France, say, or Ireland, you’re charged in euros. Their UK sales would crash if they couldn’t price in stirling via a .UK site.

  6. miki says:

    i dont know whots all the heat about,
    internal accounting procedures for trans national corporations TNC’S operating in the UK have been subject to UK rules on tax obligation for decades and are liable for tax on corporate revenue in the UK.

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