June 13, 2013 12:00 am

UK MPs demand Google tax revamp

Safeway Inc signage is displayed outside of a Safeway store in Alamo, California, US, on Friday, June 24 2011©Bloomberg

MPs have demanded urgent changes to Google’s “highly contrived” tax arrangements in a hard-hitting report that said the internet giant’s tax avoidance had damaged its reputation and that of HM Revenue & Customs.

The public accounts committee said Google put the “enormous profit” derived from the UK out of reach of its tax system. It said Google’s defence of its tax position by claiming that its sales of advertising space to UK clients take place in Ireland was “deeply unconvincing”.

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It also attacked the Revenue, saying it was “extraordinary that it has not been more challenging of Google’s corporate arrangements given the overwhelming disparity between where profit is generated and where tax is paid”.

Margaret Hodge, who chairs the committee, said the revelations of aggressive tax avoidance had damaged Google’s reputation, which would not be repaired until the company arranged to pay its “fair share” of tax.

The company said: “As we’ve always said, Google complies with all the tax rules in the UK and it is the politicians who make those rules. It’s clear from this report that the public accounts committee wants to see international companies paying more tax where their customers are located but that’s not how the rules operate today. We welcome the call to make the current system simpler and more transparent.”

Google generated $18bn revenue from the UK between 2006 and 2011, a period when the company paid the equivalent of $16m of UK corporation taxes. The company has not disclosed the profitability of the sales but pointed out that these are generated from its intellectual capital, which was not developed or owned in the UK.

The MPs also lambasted the big accountancy firms in the UK saying they were increasingly seen as being part of the problem of corporate tax avoidance, rather than the solution. “We expect the big accountancy firms to recognise that the public mood on tax avoidance has changed,” they said.

Ernst & Young, the firm that advises Google, denied promoting artificial tax structures. John Dixon, managing partner tax, UK & Ireland, at Ernst & Young said: “We do not offer advice on tax evasion, non-disclosure or artificial schemes and would always refuse to act for companies requesting advice in this area.”

The MPs were critical of the Revenue, which they said had “not been sufficiently challenging of multinationals’ manifestly artificial tax structures”. They said: “Any common sense reading of HMRC’s own guidance and tests suggests HMRC should vigorously question Google’s claim that it is acting lawfully.”

In response to the MPs’ report, Jim Harra, head of business tax for the Revenue, said: “Since 2010 we have collected over £23bn in extra tax through challenging large businesses tax arrangements. Through tackling transfer pricing issues we have collected £2bn since 2010 alone. We relentlessly pursue businesses who don’t play by the rules, these results reflect this.”

The MPs said they were “particularly concerned about the out-of-date tax frameworks covering international internet based commerce which rely on a fully automated process”.

The Treasury said: “The UK, along with Germany and France, has since last year been leading the efforts through the OECD to modernise the international tax rules and we have put tax and transparency at the heart of the G8 agenda which we will chair next week.”

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