Google tax moves too complex for UK Revenue

Google's Matt Brittin was the smoothest executive on view when Google, Starbucks and Amazon were hauled last year before the House of Commons' public accounts committee to defend the amount of corporation tax each pay.

His colleagues were lacerated, but Brittin emerged, if not unscathed, then at least not at the top of the queue for public opprobrium – that role was held by his Starbucks counterpart. However Brittin had left behind a hand grenade.

Google’s UK corporation taxes were low because advertising sales were handled by Dublin-based staff, not by those in London, he said.

Indeed, if British staff habitually did so, then Google UK would be “permanently established” under UK tax law, and thus liable for more tax.

Backing up his argument, he said 99 per cent of UK-based advertisers never speak to any Google employees when booking advertising, since everything is done online through an automatic auction, rather than by telephone bookings.

'Direct relationship'
However, near 70 per cent of total revenues come from the biggest clients who are not part of the 99 per cent and who have "a direct relationship" with London-based staff, who work with them to best convert internet searches into sales.

Following months of research, including help from former Google employees, the House of Commons inquiry has found that Google UK staff do, in fact, make sales.

In its report, the committee, which has become increasingly active under Labour MP Margaret Hodge’s leadership, went further, saying Google UK’s “primary purpose, responsibility and result” are sales.

Meanwhile, the committee members pointed out that Brittin had told them in November that the 500 London-based engineers were not involved in product development, only to say the opposite in May, even if the intellectual property rights are held in the US.

Her Majesty’s Revenue and Customs (HMRC) face difficulties, MPs concede, because of the complexity of international tax laws, which leave so much scope for aggressive exploitation of loopholes.

Undoubtedly, HMRC is not in a fair fight. It has 1,200 people to cope with the UK’s biggest 800 companies, while each of the major accountancy firms servicing those companies have thousands of staff in their tax departments.

A total of 65 tax officials specialise in transfer pricing rules – the methods used by multinationals to divert revenues from high to low-tax jurisdictions. Currently, HMRC is recruiting three more economists and 15 specialists.

'Low-tax jurisdictions'
"It is far too easy for companies to exploit the rules and set up structures in low-tax jurisdictions, rather than pay tax where they actually conduct their business and sell their goods and services," the MPs said.If HMRC has not probed the actions of Google and others in the past then it must do so, the committee argues.

The argument by MPs that Google’s reputation has been damaged is open to question, with no evidence so far of a fall in the search engine’s users.