Google faces tax review as HMRC told to clamp down

Six years of Google’s UK tax returns are under review by HMRC following an MPs’ report into tax avoidance tactics.

Last month, executives from Amazon, Google and Starbucks were called before the Public Accounts Committee, which is investigating the £32.2bn “tax gap” created by multinational corporations using loopholes to reduce their UK tax bills.

“Global companies with huge operations in the UK generating significant amounts of income are getting away with paying little or no corporation tax here,” said MP Margaret Hodge, chair of the committee. “This is outrageous and an insult to British businesses and individuals who pay their fair share.”

We expect HMRC to prosecute multinational companies who do not pay the tax due in the UK

The PAC added: “We expect HMRC to prosecute multinational companies who do not pay the tax due in the UK.”

Google bills all online advertising via its European head office in Ireland, and at the hearing, Google’s vice president of operations for Northern Europe, Matt Brittin, said his firm uses tax havens including Bermuda to increase shareholder value, but said the company obeyed the letter of the law. Last year, it posted £395m in revenue and paid £6m in UK taxes; however, a US SEC filing showed it made sales attributable to UK addresses of $4bn (£2.5bn).

The subsequent report from the PAC now claims Google is under investigation. “HMRC is currently carrying out a review of the tax returns filed by Google UK for 2005-11 inclusive and Google told us this is standard practice and that it is co-operating fully with that review,” it claims. Google said it had no further comment on the issue.

Google had argued that its profits should be taxed where it created the technology – in the US – claiming little engineering work happens in the UK. That despite Google’s own careers site stating that London is “one of Google’s largest engineering operations in Europe”.

No change?

Richard Murphy, a tax expert and campaigner, said the likelihood anything would change because of the review was “close to zero”, saying HMRC was “far too half-hearted” at dealing with such issues.

“I can see almost nothing is going to change… unless we have something much more substantial to go on,” he told PC Pro, saying he’d like to see the tax agency be “substantially more robust” at dealing with avoidance techniques, such as transfer pricing.

Hodge agreed, saying HMRC needs to be more “aggressive” and that “policing the tax system must be at the heart of what HMRC does”. However, Murphy suggested significant change wouldn’t happen until new management takes over at HMRC.

“Evasive” Amazon

Meanwhile, Amazon’s representative at the hearing, public policy director Andrew Cecil, was called “evasive and unprepared to answer legitimate questions on the company’s structure and the true location of its economic activity”.

As PC Pro previously revealed, Amazon.co.uk is considered a “fulfilment” company for the European branch of Amazon, which is based in Luxembourg, and paid £1.8m in tax last year.

However, the evidence submitted to the PAC showed £3.35bn in sales were from the UK – 25% of Amazon’s sales outside of the US.

“Yet Amazon has over 15,000 staff in the UK, invoices UK customers from the UK, hires UK staff in the UK, has inventory physically in the UK for UK customers and to all intents and purposes has the majority of its economic activity in the UK, rather than in Luxembourg, but pays virtually no corporation tax in the UK,” the PAC report said.

Unlike Google, the report didn’t say HMRC Had immediate plans to review Amazon’s taxes. However, it did note: “Amazon has received an assessment from the French tax authorities which it disputes.”

A statement from the firm said: “Amazon pays all applicable taxes in every jurisdiction that it operates within. Amazon EU serves tens of millions of customers and sellers throughout Europe from multiple consumer websites in a number of languages dispatching products to all 27 countries in the EU.”

The PAC stressed that the three firms named in the report weren’t the only ones using tax avoidance techniques – and said HMRC needed to do more to tackled the problem. “Both HMRC and corporate taxpayers are failing to meet the legitimate public expectations from the tax system,” the PAC said.