PAC wants explanation from HMRC and Google over £130m tax deal

HMRC’s announcement that it has agreed a deal with Google which will see the internet giant pay £130m to cover back taxes from 2005 has caught the attention of the Public Accounts Committee chair, Meg Hillier, who is now to call both HMRC and Google to ‘explain’

In a tweet sent out at the weekend Hillier wrote: ‘Bet individual taxpayers wouldn't get off as lightly as Google on back tax. Cosy deal. Will call HMRC and Google to PAC to explain.’

Google’s one-off payment of £130m comes on top of the £200m it has paid in tax since 2005, on estimated profits in the UK of £7.2bn but has come under strong criticism as ‘derisory’, despite Chancellor George Osborne calling the move ‘a really positive step’

Last week the tax authority said the agreement, which follows HMRC’s six-year investigation into the tax affairs of several multinationals, will draw a line under disagreements over how much corporation tax the US company should pay in the UK.

Speaking at the World Economic Forum in Davos, Osborne said: ‘This is a major success of our tax policy. We’ve got Google to pay taxes and I think that is a huge step forward and addresses that perfectly legitimate public anger that large corporations have not been paying tax. I think it’s a big step forward and a victory for the government.’

In a statement Google said: ‘We have agreed with HMRC a new approach for our UK taxes and will pay £130m, covering taxes since 2005. We will now pay tax based on revenue from UK-based advertisers, which reflects the size and scope of our UK business.

‘The way multinational companies are taxed has been debated for many years and the international tax system is changing as a result. This settlement reflects that shift and is in line with recent OECD guidance.’

However, John McDonnell, Labour’s shadow Chancellor, described the deal as ‘derisory’ and called for the National Audit Office to launch an inquiry into the arrangement.

An HMRC spokesman said: ‘The successful conclusion of HMRC enquiries has secured a substantial result, which means that Google will pay the full tax due in law on profits that belong in the UK. Multinational companies must pay the tax that is due and we do not accept less.’

However, HMRC has not commented on whether the deal took into account any potential liabilities Google might have under the new Diverted Profits Tax (DTP) introduced on 1 April 2015 and intended to tackle the issue of multinationals diverting profits to lower tax jurisdictions. The agreement settles Google’s tax liability up to June 2015.

A spokesperson for HMRC said: ‘We intensively manage the tax risks posed by multinationals. At any given time approximately two thirds of large businesses are under enquiry.’

Evidence presented to a PAC inquiry in 2013 under former chair Margaret Hodge found Google to be booking revenues from advertising sold to UK clients through its international headquarters in Ireland. The Dublin office then sends licensing fees via a sister company in Amsterdam to an offshoot in Bermuda.

At the time, Hodge said Google was being ‘calculated and unethical’ over how it pays tax in the UK, and said it was ‘evil’ for not paying its fair share of tax.

Tax barrister Jolyon Maugham, QC, said the latest agreement with HMRC appeared not to have challenged the issue of whether Google has a UK permanent establishment, which would have a substantial impact on its tax position.

‘There are reports that the French tax authorities are going to test the question for France. I can’t understand why HMRC isn’t going to ask our courts to decide that question for us,’ Maugham said.

Both HMRC and Google declined to comment.

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Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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