Multinational tech giant Google cut a £130m back tax deal with HMRC last week on profits amounting to more than £6bn over the last decade, a settlement that has outraged the public, tax campaigners and even Conservative ministers.
Chancellor George Osborne hailed the deal “a major success” at the weekend, but as the public backlash mounted on Monday (January 28), prime minister David Cameron muted his tone, with his spokesman calling it merely “a step forward.”
The deal comes against a backdrop of growing public anger over global corporate tax evasion and avoidance. Enormously profitable multinational companies, armed with an army of tax advisors, are able to perfectly legally funnel profits into different countries to dramatically lower their tax bill.
Google, for example, registers its sales in Ireland, where the corporation tax is much lower than in the UK, and then diverts profits to Bermuda.
Google has avoided paying tax over the last decade in the UK because it says that its sales of advertising space are technically made in Ireland.
But in 2013, a parliamentary committee investigating Google and other multinationals’ tax affairs argued that, while legal, the arrangement is patently disingenuous.
Google whistle-blowers came out at the time with evidence demonstrating that sales did indeed take place in the UK. One Google UK employee noted that he had received bonuses three to four times his salary for “selling and closing deals”.
But head of Google’s northern European operations Matt Brittin insisted to the parliamentary committee that for tax purposes, contrary to appearances, all sales were made in Ireland.
“The UK team are selling, but they are not closing … People here [in the UK] cannot sell what they don’t own,” he said at the time.
Under similar arrangements, other large multinational companies are able to get away with paying very little in tax in the UK.
Apple, for example, paid only £11.8m in tax in 2014, while Amazon paid £11.9m in tax in the same year, despite registering more than £5bn of its UK sales in Luxembourg, another noted tax haven.
Richard Murphy of Tax Research UK calculated that Google’s tax liability in the UK should be at least £200m in 2014 alone. He noted that the paltry £130m that Google has been asked to pay in back taxes spanning 10 years meant that the tech giant was being taxed in the UK at effective rate of not more than 5 per cent, and perhaps as little as 3 per cent, while other businesses in the UK must pay corporation tax at 20 per cent.
Another tax expert, Joylon Maugham, calculated nearly identical estimates as Murphy did.
Shadow chancellor John McDonnell wrote to Osborne earlier this week to demand that he release details about how the settlement was reached and whether the chancellor was involved in arranging the deal.
“This deal with Google raises a number of important issues about the tax treatment of large companies in the UK,” he wrote in his letter. “When times are tough it is more important than ever that everyone pays — and is seen to pay — their fair share.”
The government has said that the backdated tax deal was solely an HMRC decision, after the tax authority conducted a six-year investigation into the tech giant.
But the Mirror revealed today that top Tory ministers, including the chancellor, home secretary Theresa May, skills secretary Nick Boles and health secretary Jeremy Hunt, held at least 24 official meetings with Google in the run-up to the deal between January 2014 and September 2015.
Criticism of Google’s tax deal even came from Conservative corners with London mayor Boris Johnson and senior Tory MP David Davis both questioning the settlement.
Davis called for transparency of Google’s finances and tax arrangements, adding that what Google was being made to pay was “a very small number.”
Johnson noted the settlement was “derisory” and told Sky News, “What everyone wants is a bit of clarity on where their profits are being made and an agreement on how much they should be paying. At the moment what is worrying is that we don’t really have the transparency about it.”
Other countries are chasing Google for back taxes with what may be much greater success. The Times revealed today that Italy may be forcing Google to hand over £130m in backdated taxes, which would amount to an effective tax rate of 15 per cent of its €1bn in revenues.
The French government is said to be seeking a €500m deal that will amount to three times what the UK government has asked from Google, despite the company employing thousands more staff and generating significantly more profit in the UK.
Unite assistant general secretary Steve Turner condemned the government’s unwillingness to do anything substantive to combat tax evasion.
“This week’s news that Google will pay an effective rate of just 3 per cent over the past decade puts the lie to this government’s supposed aims to crackdown on tax dodgers,” he said. “This was a singular opportunity for the government to make good on their pledge to level the tax playing field by making Google stand as an example, but they blew their chance.
“The deal sets a disastrous precedent,” Turner added. “If Google, one of the most profitable companies in the entire globe, can get away with paying what for them is mere pocket change, then other corporate giants – the Facebooks, the Starbucks, the Amazons of the world – will feel they can follow suit.
Turner highlighted the different set of rules that the wealthy and ordinary people must play by.
“While ordinary working people must pay tax or be prosecuted, must suffer under the weight of austerity because the government doesn’t have the nerve to stand up to their mates in the City, profit-flush companies will not have to contribute to the country and its workforce which have helped make them such a success,” he said.
“What a heart-breaking disparity – the poorest and most vulnerable are slammed with the Bedroom tax; the wealthiest play games with their tax bill to pay as little as they can get away with and it is called a success by Osborne.”
“Corporate tax reform does require significant international cooperation but most of all it requires the political will here at home,” Turner noted. “As tax experts have pointed out, this government can very easily make changes to the tax code to force companies that do business here to pay their fair share. If France and Italy can collect substantially more from corporate giants, then so can we.”
War on Want has launched a petition to demand greater tax transparency in Europe. Find out more here.