Google pays ‘fair’ amount of tax in the UK, executives tell Public Accounts Committee
11 February 2016
Google has insisted that it pays a "fair" amount of tax in the UK, as one high-paid executive came under fire from MPs after admitting he did not know how much he earned.
Senior executives from the internet giant were grilled by the House of Commons Public Accounts Committee over a £130 million settlement with HM Revenue & Customs to cover taxes due over the past 10 years.
The deal was hailed at the time by Chancellor George Osborne as a “victory”, but committee chairwoman Meg Hillier said ordinary taxpayers felt “anger and frustration” over the figure, when Google earned profits of £106 million on revenues of £1.8 billion in the UK the last 18 months alone.
Google’s president for Europe, the Middle East and Africa, Matt Brittin, told the committee he understood public anger over claims that the deal amounted to an effective tax rate of just 3%, but insisted that the company in fact paid corporation tax at 20% on its activities in the UK like anyone else.
Ms Hillier told Mr Brittin he was “living on another planet”. She demanded four times to be told what Mr Brittin was personally paid, but he responded: “I don’t have the figure but I will happily provide it.”
The committee chair responded: “You don’t know what you get paid? … Out there, taxpayers, our constituents, are very angry, they live in a different world clearly to the world you live in, if you can’t even tell us what you are paid.”
Mr Brittin replied: “I understand the anger and understand that people when they see reported that we are paying 3% tax would be angry. But we’re not. We’re paying 20% tax.”
The £130 million figure was “the conclusion of a six-year rigorous, independent tax audit” in which Google offered “full transparency” to HMRC, he said.
The figures reflected the fact that corporation tax is paid not on sales, but on the economic value of activities in the UK, said Mr Brittin. Much of the economic value driving sales in the UK was created by 20,000 engineers writing code in the US.
Google’s 4,000 staff in the UK were outnumbered by the 5,000-plus in Ireland who processed business for the whole of Europe, the Middle East and Africa, he said. And he insisted that Google’s practice of channelling funds through Bermuda “has no impact on the tax we pay in the UK” and is “a commonplace arrangement for American companies”.
But committee member Stewart Jackson (C Peterborough) told him: “You have made a choice to avoid tax and you have set up structures so to do. There is an element here of ‘We are doing the UK taxpayer a favour by paying tax’.”
And David Mowat (C Warrington South) said: “Our concerns are not that you should be taxed on sales, but that you have come up with a number of contrived mechanisms, such as the ‘Double Irish’, the ‘Dutch Sandwich’ and the use of Bermuda.”
Google Inc’s vice-president Tom Hutchinson told the committee that the £130 million paid to HMRC included £18 million interest, but did not include any fines or payments under George Osborne’s diverted profits tax – nicknamed the Google Tax.
The figure was the largest tax settlement following audit ever paid by Google outside the US, and the company believed it was “fair”, he said. Worldwide, Google was paying 19% tax – very close to the UK rate of 20%.
Mr Hutchinson said: “We are paying the fair amount of tax worldwide. It’s up to governments to decide where we should be paying that tax. I would love to see the system more simple so we wouldn’t have to come to hearings like this to explain it, but we need governments to work together to develop an overall worldwide system to take that 19% and split it in a simple way.”
Mr Brittin acknowledged tax “will have come up from time to time as a question” in the company’s meetings with Government ministers, but said Google “never sought or had a meeting” with ministers about the audit.
HMRC chief executive Dame Lin Homer denied that large companies like Google were given preferential treatment, telling the committee: “It is exactly the same system we apply to everyone … We then apply exactly the same approach to expecting back payments and fines.”
But HMRC’s director general of business tax Jim Harra acknowledged that imposing fines on large companies was “quite a challenge”, as taxmen have to prove not only that the self-assessment return was wrong – which he said it was in Google’s case – but also that insufficient care was taken in preparing it.
Mr Harra said that the £130 million recouped from the HMRC investigation represented “a very substantial amount” of the total £196.4 million paid by Google in corporation tax and interest over the 10-year period.
There were already signs that large companies were paying more corporation tax to avoid the diverted profits tax, introduced in 2015 to impose levies at a higher rate on sums believed to have been shielded from corporation tax, he said.
Ms Hillier later told BBC Radio 4’s World at One that she had not yet received details of Mr Brittin’s salary, and a Google spokeswoman declined to disclose it to the Press Association.
The PAC chairwoman said Mr Brittin’s responses showed Google was “detached” from taxpayers’ concerns. She told World at One: “Most of us can say what we earn, because it rather matters because we have to pay the rent at the end of the month.”
She added: “We know there are issues around the global tax structure, but that doesn’t let Google off the hook … They haven’t changed the way they set up the company, they are promising to be different in the future. We will wait and see what happens.”
Jonathan Isaby, chief executive of the TaxPayers’ Alliance, said: “The tax system is a complicated mess and grandstanding for the TV cameras simply won’t do the job of fixing it. The Treasury Select Committee is now investigating corporate taxes, so the time is right to implement major reforms to the entire system.
“Taxpayers deserve simpler, lower taxes as well as a system they can trust.”
ActionAid tax justice adviser Anders Dahlbeck said Mr Brittin was right that the international tax system was “in desperate need of reform”.
“Successful reform must take account of the poorest countries in the world,” said Mr Dahlbeck. “It is often the poorest who are hit hardest by corporate tax avoidance, with the IMF estimating developing countries lose 200 billion US dollars a year.
“The UK Government should lead on securing a global tax system which tackles tax avoidance around the world, ends the race to the bottom on tax and supports developing countries to find a sustainable route out of poverty. Companies must also get their own house in order, adopt a more responsible approach to tax, and start acting as better corporate citizens.”
Photo from PA Wire