Google's £130m settlement with HMRC could negatively affect public's relationship with tax authority, advisers tell Accountancy Age
GEORGE OSBORNE and HMRC believe they’ve secured a “victory” in the corporation tax battle with Google, but a number of tax advisers have questioned the agreement, with one tax expert frustrated with “the lack of informed debate” around the whole investigation.
Over the weekend the search engine giant announced that it is to pay £130m in back taxes to HMRC following a six-year investigation from the tax authority.
HMRC looked at Google’s books from the years from 2005 to 2015 following years of criticism over the government’s handling of Google and other multinationals’ tax affairs.
The technology firm currently books its UK sales through its international headquarters in Ireland, where there is a lower rate of corporation tax.
Osborne hailed the announcement as “a victory” for the UK and HMRC, but others have said that £130m isn’t anywhere enough, with shadow chancellor John McDonnell labelling the payment a “sweetheart” deal.
“HMRC seems to have settled for a relatively small amount in comparison with the overall profits that are made by the company in this country. And some of the independent analysts have argued that it should be at least ten times this amount,” said McDonnell on BBC Radio 4’s Today programme.
Mark Garnier, a Conservative MP and a member of the Treasury Select Committee, said the sum represented a “relatively small” amount of cash when compared with Google’s UK profits.
In 2013, Google told UK tax authorities that that its UK profits were £642m, but when filing in the US, its documents showed that they actually made $5.6bn (£3.9bn).
Chas Roy-Chowdhury, head of taxation at ACCA told Accountancy Age that HMRC would have been looking for a larger payment from the technology company, but feels that the tax watchdog has secured a “fair deal”. Chowdhury believes that this event could be the start of a difference in the way multinationals pay their UK taxes.
Public Accounts Committee chairwoman Meg Hillier suggested the tech giant had got off lightly and tweeted over the weekend that both HMRC and the US firm will be pulled into the House of Commons “to explain” the situation.
Bet individual taxpayers wouldn’t get off as lightly as Google on back tax. Cosy deal. Will call HMRC and Google to @CommonsPAC to explain.
— MegHillierMP (@Meg_HillierMP) January 23, 2016
Jonathan Riley, national head of tax at Grant Thornton, told Accountancy Age that he has a “sense of frustration at the lack of informed debate” around multinationals and their UK tax affairs, but feels that there will be a greater clampdown on larger companies in the future, adding that “the legal structures adopted by Google will be subject to examination by tax authorities in the UK and elsewhere.”
One question that has emerged from this event is whether the relationship between the UK and the OECD’s Base Erosion and Profit Shifting (BEPS) initiative has been affected.
“If the dispute has been going on for as long as HMRC claims then it predates BEPS and the action of the OECD,” said Riley.
“It does go some way though to explain why the Diverted Profits Tax (DPT) – popularly dubbed “the Google tax” – regime was introduced. The next Budget will also, I am sure, contain the government’s response to BEPS, especially on interest deductibility.
“And we can also expect the forthcoming business tax roadmap to reference the challenges all governments face in multi-jurisdictional tax matters.”
Rebecca Busfield, partner at Watt Busfield Tax Investigations suspects that this deal is a reversal on HMRC’s Litigation and Settlement Strategy, with the tax authority previously stating that it will not do sweetheart deals.
“Unfortunately this deal will not help public perceptions that there is a level playing field for taxpayers. In the long term it could increase the tax gap as some individuals and companies may see this as justification to enter into tax avoidance or even evasion themselves,” said Busfield.
This is not the first time that a multinational corporation has paid owed corporation tax. In 2013, coffee empire Starbucks agreed to pay back around £10m in tax owed since 2008, with a further £10m to be paid the following year.