Google has published its accounts for the year ending June 30 2016 and it has once again come under fire in the UK, on two different fronts.
Opponents say the company, which racked up UK sales of over £6 billion according to accounts filed in the US by parent company Alphabet, is still not paying enough tax. Also attracting criticism is the revelation that HMRC paid back £31.4 million to the tech giant for previously overpaid taxes, a notion that has raised hackles among Google’s critics who see it as underpaying in the UK.
In January 2016, the company settled a dispute with the tax authorities and promised to pay more. “We will now pay tax based on revenue from UK-based advertisers,” a spokeswoman said after the settlement.
However, opposition Labour Shadow Chancellor John McDonnell said it seems Chancellor Philip Hammond and Prime Minister Theresa May are “more interested in cutting Google’s taxes than making them pay their fair share”.
“It is a national disgrace that by paying just £36 million in tax Google could have an effective tax rate lower than many working families in our country,” McDonnell said. “It seems that the so-called ’successful’ tax deal with Google that [former Chancellor] George Osborne boasted about last year has meant that they are still not paying their fair share under his successor Philip Hammond.”
The company’s structure, where it books sales through low-tax jurisdiction Ireland, has allowed Google to lower its tax bills in the UK. The tech company also does not have a permanent establishment in the UK.
Richard Murphy, chartered accountant and a political economist, said that the problem was the economic substance is not being taxed. “I don’t care that the technicalities are all in Google’s favour,” Murphy told TP Week. “It still looks to me like Google is declaring £1 billion in the UK and is recording sales in the UK in its US account as more than £5 billion. It’s under declaring its tax liabilities in the UK compared to the level of economic activity it’s undertaking here.”
Google denied any wrongdoing, stating that “as an international business, we pay the majority of our taxes in our home country, as well as all the taxes due in the UK”.
Simon Gompertz, BBC personal finance correspondent, said the debate was likely to rumble on because of the way Google organises its activities across international borders. “One reason for the discrepancy is that it treats its business here as a development and marketing services operation. Sales are booked in the Irish Republic, where the tax rate happens to be lower,” Gompertz said.
John Cullinane, of the Chartered Institute of Taxation, told the Daily Mail that if the amount of corporation tax Google pays in the UK were based on the amount of profit it makes from its sales to UK customers, Google would be paying about 10 times as much. He reportedly said he had no problem with the arrangement, adding: “There are big swings and roundabouts. That’s just how things work.”
Taxpayers’ debt to Google
Some critics also zoomed in on the a different part of the accounts, where it states that HMRC owed Google £31.4 million in overpaid corporation tax. Two years ago, ministers promised to recoup “hundreds of millions” from global tech companies avoiding being taxed on UK profits. HMRC struck a deal with Google last year, where it agreed to pay £130 million to settle taxes owed over a 10-year period, and now it looks like the taxman repaid £31.4 million in corporation tax to the company.
Murphy said that this almost certainly was Google “dumping a pile of money on the Revenue to try and make a settlement and it hasn’t been refunded yet”.
“This is an interesting fact. Why did they owe the pay? They didn’t think they were going to have to pay that much. There’s a twist in there,” Murphy told TP Week.
HMRC declined to comment on the payout to Google, saying it does not comment on individual cases.
