WHEN NEWS first broke that Google had struck a £130m tax deal with HMRC, PAC chair Meg Hillier immediately pledged to question both groups over the ‘cosy deal’.
The MP was true to her word and last week Google and HMRC bosses appeared before the influential cross-party comittee. Here is what we learned.
Even though the PAC has a new leader, it still doesn’t understand tax
It’s been nearly a year since Meg Hillier took over from Margaret Hodge as chair of the PAC, but it seems that she is still getting to grips with UK tax legislation.
There were a number of times during the hearing where Matt Brittin, head of Google’s European operation, and Google vice-president Tom Hutchinson had to correct Hillier and co on Google’s complex arrangements and how it deals with UK tax law.
One adviser felt that the PAC hearing exposed how little knowledge Hillier and co have over UK tax law.
George Bull, senior tax partner at RSM said that the “grandstanding and bear-baiting” used by the PAC stopped the committee from getting clear answers to legitimate questions.
“One issue which received scant recognition was the probability that increased tax liabilities for a company in one country might well result in lower taxes being paid elsewhere,” said Bull.
Google hasn’t grasped the public’s perception over the deal
The public were outraged over the Google deal, so Meg Hillier made it her job to make sure that the Google execs understood the seriousness of the situation. As anticipated, Google reasserted that it has complied with tax laws.
“I understand the anger and understand that people when they see reported that we are paying 3% tax would be angry. But we’re not. We’re paying 20% tax.”
But after the chair questioned Brittin over his salary, it seems like Google isn’t on the same wavelength as the public when it comes to tax.
“You don’t know what you get paid? … Out there, taxpayers, our constituents, are very angry, they live in a different world clearly to the world you live in, if you can’t even tell us what you are paid,” said Hillier after Brittin claimed he didn’t know how know much he was earning.
“Don’t you feel a bit embarrassed? You don’t know how much you are paid. You are living on a different planet to most of our constituents,” continued an exasperated Hillier.
Google’s tax settlement had nothing to with DPT
Chancellor George Osborne claimed that the controversial Diverted Profits Tax (also known as the ‘Google tax’) was a major factor in Google’s £130m settlement, but Google vice-president Hutchinson was quick to dismiss that claim.
“My understanding is that it [the tax deal] had nothing to do with the DPT”, said Hutchinson. This announcement by the Google chief may well have damaged the power of the DPT even further, especially as the OECD have put further measures in place to clamp down on multinational tax avoidance.
Proving Google had acted unreasonably is difficult
Although HMRC believed that the company had not paid enough tax in previous years, Jim Harra, its head of business taxation, said the company was not fined because proving “insufficient care” was “very difficult”.
Harra was unable to respond to MPs’ questions as to how much the six-year Google tax audit had cost, but said it had been ‘very expensive and resource intensive’, largely because of the complexity in transfer pricing cases.
“We can challenge that and they can accept they need to change their position but it is very difficult to establish they have taken insufficient care,” he said.
International tax rules are broken
Brittin and Hutchinson refused to provide details of Google’s reported tax settlements with France and Italy – said to be higher than the amount they have paid the UK taxman, despite making less profits in those countries.
According to Bull at RSM, “unless the fundamental structure of corporation taxes worldwide is to be changed, debates such as this present the spectacle of individual countries scrambling for larger slices of the same cake.”
Does Darwin's theory apply to taxation? Colin ponders...
The UK tax gap fell in 2014-15 to its lowest-ever level of 6.5%, revealed official statistics published today
"The whole idea of HMRC officials supplying confidential information about individuals to the media on a non-attributable basis is, or should be, a matter of serious concern," say Supreme Court judges
Changes to the tax system is urged to support the growth of entrepreneurs, found a report from the Grant Thornton UK, the Institute of Directors, and the Prelude Group