Commission will examine Google’s £130m UK tax deal

The European Commission has said it will examine Google's controversial settlement with British tax authorities, under which it agreed to pay £130 million (€171m) in back taxes dating to 2005.

The move represents an escalation of the row over Google’s “sweetheart” tax deal, after opposition parties called on the Commission to investigate if the settlement violated EU competition rules.

The Scottish National Party said on Thursday that it had written to competition commissioner Margrethe Vestager, after the commissioner confirmed that she would be willing to investigate the deal if she received a complaint.

“What we’ve received today is a letter from a stakeholder, we will look into it and then decide where to go from there” the commission said.

Opening a full inquiry into the Google deal would concern Ireland, with a major part of the investigation that led to the £130 million settlement focusing on Google's Irish tax presence, from where it said it managed its UK sales. While the immediate implications for Ireland are unclear, higher tax payments in future by Google in the UK are expected to result in lower payments here.

The UK move is also part of a wider international questioning of where companies pay tax , and the rules governing this. Separately yesterday a major EU move to close multinational tax avoidance loopholes was launched and a major OECD tax project also raises questions about the basis of future multinational taxation.

‘Major victory’

In relation to the Google tax deal, the chancellor of the exchequer George Osborne on Thursday defended the Google deal, which he had earlier described as a "major victory" for the UK.

“When I became the chancellor, Google paid no tax. Now Google is paying tax and I have introduced a new thing called a diverted profits tax to make sure they pay tax in the future. I regard that as a major success,” he told Sky News.

“Is there more to do? Clearly there is. We’ve got to make sure the international rules catch up and we are leading that effort. But ultimately the solution to all of this is to make sure we have got more British companies out there that are great successes in areas like tech.”

Google executives face a grilling next month by the House of Commons Public Accounts Committee, which in 2013 accused the company of "doing evil" by failing to pay its fair share of tax. In a letter to the Financial Times on Thursday, the company's European public affairs chief Peter Barron claimed critics did not understand how international tax rules work.

“As a US company, we pay the bulk of our corporate tax in the US: $3.3 billion (€3.03bn) in the last reported year. What should Google pay in the UK? We pay tax based on the value added by the economic activity of our staff here, at the current standard rate: 20 per cent,” he wrote.

Google complies

“After a six-year audit we are paying the full amount of tax that HM Revenue & Customs agrees we should pay, including £130m in additional back tax. Governments make tax law, the tax authorities independently enforce the law, and Google complies with the law.”

Ms Vestager has already launched an investigation into Google’s search dominance and she is also looking into Apple’s European tax arrangements, specifically relating the arrangements reached with the the Irish authorities.

She said it was “way too early” for her to comment on the details of Google’s tax deal in the UK but explained how sweetheart tax deals could constitute unfair state aid to companies.

“If one company doesn’t pay the taxes then obviously this company has a stronger position in that competition. That’s why we can use state-aid tools to look for more individual companies and more selective advantages being given out in the form of tax rulings,” she said.

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