This article is from the source 'guardian' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.
You can find the current article at its original source at http://www.theguardian.com/technology/2016/feb/11/can-google-say-it-pays-close-to-the-rate-of-uk-corporation-tax
The article has changed 5 times. There is an RSS feed of changes available.
| Version 2 | Version 3 |
|---|---|
| Can Google say it pays close to the rate of UK corporation tax? | |
| (about 1 hour later) | |
| It was with a straight face that Google’s global head of tax, Tom Hutchinson told MPs on parliament’s public accounts committee that the search group’s worldwide tax rate over the past five years was about 19%. | It was with a straight face that Google’s global head of tax, Tom Hutchinson told MPs on parliament’s public accounts committee that the search group’s worldwide tax rate over the past five years was about 19%. |
| “To me, that appears to be a fair amount of tax to pay,” he said, deadpan. It was a number he and Google’s European boss Matt Brittin kept coming back to in their evidence, on each occasion noting that it was “close to the UK [corporation tax] rate,” currently 20%. | “To me, that appears to be a fair amount of tax to pay,” he said, deadpan. It was a number he and Google’s European boss Matt Brittin kept coming back to in their evidence, on each occasion noting that it was “close to the UK [corporation tax] rate,” currently 20%. |
| Let’s look at the number in more detail. Only last week, Google revealed its global tax rate for 2015. The figure was 17%, not 19%. Its average rate over the last three years was 17.5%. Only by going back five years can Google say its average rate is 18.7%. | Let’s look at the number in more detail. Only last week, Google revealed its global tax rate for 2015. The figure was 17%, not 19%. Its average rate over the last three years was 17.5%. Only by going back five years can Google say its average rate is 18.7%. |
| And how does 18.7% compare to the UK rate for corporation tax? Well, the current UK rate may be 20%, but that figure has been falling rapidly: the average over the last five years is 23.2%. | And how does 18.7% compare to the UK rate for corporation tax? Well, the current UK rate may be 20%, but that figure has been falling rapidly: the average over the last five years is 23.2%. |
| So, on closer inspection, Google’s global tax rate is roughly four-fifths of the UK tax rate – not exactly the flattering comparison Google attempted to make. | So, on closer inspection, Google’s global tax rate is roughly four-fifths of the UK tax rate – not exactly the flattering comparison Google attempted to make. |
| But let’s set aside the numbers. Why did Google bother at all to compare its global tax rate with the UK rate? Is that the right comparison to make? After all, if the technology giant had one central message for MPs it was that the vast majority of economic value was created in America, where, in all fairness, tax should be charged. | But let’s set aside the numbers. Why did Google bother at all to compare its global tax rate with the UK rate? Is that the right comparison to make? After all, if the technology giant had one central message for MPs it was that the vast majority of economic value was created in America, where, in all fairness, tax should be charged. |
| UK advertisers might provide £5bn of Google’s sales – 10% of the global tally – but the economic contribution of the company’s British operations is close to inconsequential. It is for this reason, and no other, MPs were told, that Google UK pays so little tax. | UK advertisers might provide £5bn of Google’s sales – 10% of the global tally – but the economic contribution of the company’s British operations is close to inconsequential. It is for this reason, and no other, MPs were told, that Google UK pays so little tax. |
| If that is so, how does Google’s tax rate compare to the US rate of corporate income tax? Here the gap is enormous. US businesses are supposed to pay 35% on their profits, in addition to which they must pay local state taxes. | If that is so, how does Google’s tax rate compare to the US rate of corporate income tax? Here the gap is enormous. US businesses are supposed to pay 35% on their profits, in addition to which they must pay local state taxes. |
| In that context, Google’s global tax rate of 18.7% is a stunning testimony to the ingenuity of Hutchinson and his tax planners. | In that context, Google’s global tax rate of 18.7% is a stunning testimony to the ingenuity of Hutchinson and his tax planners. |
| Later, when MPs started to explore Google’s use of controversial international tax strategies such as the “Double Irish”, Huchinson and Brittin were quick to move the conversation on. | Later, when MPs started to explore Google’s use of controversial international tax strategies such as the “Double Irish”, Huchinson and Brittin were quick to move the conversation on. |
| These controversial arrangements have nothing to do with how much tax Google pays in the UK, they said. | These controversial arrangements have nothing to do with how much tax Google pays in the UK, they said. |
| However hard that was for MPs to swallow, it was correct. | However hard that was for MPs to swallow, it was correct. |
| That’s because as soon as HMRC accepts Google’s £5bn of UK sales are made by a company in Ireland with no taxable presence in Britain – no “permanent establishment” – then the hands of UK tax inspectors are tied. | That’s because as soon as HMRC accepts Google’s £5bn of UK sales are made by a company in Ireland with no taxable presence in Britain – no “permanent establishment” – then the hands of UK tax inspectors are tied. |
| Any subsequent profit shifting – to Google in the Netherlands, Bermuda or elsewhere – must remain outside the scope of their inquiries. | Any subsequent profit shifting – to Google in the Netherlands, Bermuda or elsewhere – must remain outside the scope of their inquiries. |
| Three years ago MPs had circled Brittin on this point like a pack of dogs scenting blood. They had whistleblower evidence from former employees, tax campaigners and big Google clients. | Three years ago MPs had circled Brittin on this point like a pack of dogs scenting blood. They had whistleblower evidence from former employees, tax campaigners and big Google clients. |
| On Thursday, however, there was little appetite for a fiery contest on the same ground. Yes, there were sniggers when Brittin lamely claimed that tax was not the only reason why €18bn of international sales were routed through Dublin. Conservative MP Stewart Jackson said this was “risible evidence”. | On Thursday, however, there was little appetite for a fiery contest on the same ground. Yes, there were sniggers when Brittin lamely claimed that tax was not the only reason why €18bn of international sales were routed through Dublin. Conservative MP Stewart Jackson said this was “risible evidence”. |
| But for his part, Brittin – in his third appearance before the committee in four years — sounded more assured than ever. | But for his part, Brittin – in his third appearance before the committee in four years — sounded more assured than ever. |
| The reason is that HMRC had spent six years testing whether Google’s Irish business had a permanent establishment in the UK. Inspectors had visited offices in London and Dublin and had pored over the whistleblower evidence provided by the PAC. But after what must be one of Britain’s biggest ever tax audits, the inspectors had firmly endorsed Google’s claim that its Irish sales hub was not active in the UK – despite booking £5bn of sales a year here. | The reason is that HMRC had spent six years testing whether Google’s Irish business had a permanent establishment in the UK. Inspectors had visited offices in London and Dublin and had pored over the whistleblower evidence provided by the PAC. But after what must be one of Britain’s biggest ever tax audits, the inspectors had firmly endorsed Google’s claim that its Irish sales hub was not active in the UK – despite booking £5bn of sales a year here. |
| Some will say the absence of Margaret Hodge, the committee’s pugnacious former chair was the reason the hearing appeared to drift, then peter out. In truth, it was because MPs had lost the battle and they knew it. | Some will say the absence of Margaret Hodge, the committee’s pugnacious former chair was the reason the hearing appeared to drift, then peter out. In truth, it was because MPs had lost the battle and they knew it. |
| At one point, MPs suggested to Google that the tide of international tax reform was moving against them. Sooner or later, the company would have to abandon its Irish shenanigans. | At one point, MPs suggested to Google that the tide of international tax reform was moving against them. Sooner or later, the company would have to abandon its Irish shenanigans. |
| Indeed, last October, leaders from 60 countries agreed an unprecedent package of reform for international tax, including a crackdown on artificial structures used by global internet advertisers to avoid having a permanent establishment in major markets. | Indeed, last October, leaders from 60 countries agreed an unprecedent package of reform for international tax, including a crackdown on artificial structures used by global internet advertisers to avoid having a permanent establishment in major markets. |
| These G20-led reforms have the official backing of nations representing 90% of the world’s economy, including the US and UK. | These G20-led reforms have the official backing of nations representing 90% of the world’s economy, including the US and UK. |
| “Countries across the world are now better equipped to deal with corporate tax avoidance,” said George Osborne at a dinner of world finance minister held in Peru to celebrate completion of the reform plan. | “Countries across the world are now better equipped to deal with corporate tax avoidance,” said George Osborne at a dinner of world finance minister held in Peru to celebrate completion of the reform plan. |
| Huchinson, however, takes a very different view. Behind the political back-slapping and grandstanding, he sees there is much to play for. “A lot of what is in those [OECD] reports is not final,” he told MPs, without elaborating. | Huchinson, however, takes a very different view. Behind the political back-slapping and grandstanding, he sees there is much to play for. “A lot of what is in those [OECD] reports is not final,” he told MPs, without elaborating. |
| His assessment may well be correct. Certainly, no one on Wall Street appears to be paying much attention to the debate over Google’s taxes. The markets clearly don’t expect the search group’s profits to be hit by higher taxes any time soon. And it’s rarely wise to bet against the markets. | His assessment may well be correct. Certainly, no one on Wall Street appears to be paying much attention to the debate over Google’s taxes. The markets clearly don’t expect the search group’s profits to be hit by higher taxes any time soon. And it’s rarely wise to bet against the markets. |