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Leader: Google cough up tax dough, but deal seems half-baked

ON the basis that half a loaf is better than no bread at all, HMRC’s agreement with Google to recover £130m in back taxes represents a sign – if only a minor one – that political and public pressure has started to force multinational companies to start coughing up the tax that is due.

But to keep with the bread analogy, the deal – which covers taxes owed by Google since 2005 – is somewhat half-baked. For one, it lacks transparency, so it is hard to judge how the figure was reached and whether it represents a good or bad a deal for the taxman.

Based on estimates that the Silicon Valley giant should be paying £200m a year in corporation tax, calculated on the firm’s declared profit margins and 2014 sales in Britain of £4.5bn, coaxing £130m out of Google in back payments over a ten year period doesn’t match with chancellor George Osborne’s claim the deal is “a major success”.

Extracting taxes out of multinationals has proved incredibly difficult for the taxman. Facebook UK paid just £4,327 in corporation tax last year. HMRC arguably did well in getting any back money out the Google at all. And the deal will likely open the way for HMRC to strike further deals on back taxes with the likes of Facebook and Amazon.

Under the deal, Google is to shell out an extra payment of corporation tax “based on revenue from UK-based advertisers”. But the agreement appears to leave intact the complex arrangements Google uses to minimise its tax payments by booking revenues from advertising sold to UK clients through its global headquarters.

The agreement is out of kilter with proposed rules backed by the OECD, which are intended to force companies to recognise their sales in the countries they originate from, and by unilaterally cutting a deal with the tech giant the UK risks undermining international efforts to clampdown on tax avoidance.

Richard Crump is the editor of Accountancy Age and Financial Director

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