Recently filed accounts show that Google managed to legally avoid paying millions of pounds in corporation tax by channelling its earnings through its Irish subsidiary.
Google has based its European headquarters in Dublin.
Tax expert Richard Murphy has been looking at the figures for Sky News Online:
Google Inc has the motto "don’t be evil". Maybe it should add "and pay no tax outside the USA".
Google is a profitable company. In 2008 it made worldwide sales of $21,795m (£11,774m).
On that it made profits in 2008 of $5,853m (£3,161m). That is a 26.8% profit rate, which puts it in the same league as banks in terms of its ability to generate cash.
The UK tax rate for that year would have been 28.5%. But Google is not a UK company, it is a US company and tax rates there are much higher than here.
The US company tax rate is 35% and added on to that are state taxes.
Combined and if charged at full rate Google would have paid $2,311m in US taxes in 2008.
Actually, it reduced that bill to $1,815m through adjustments. Meanwhile, its total tax bill outside the USA was just $91 million.
Google has always said it believes it can make money ‘without being evil’
That bill outside the USA would not be odd if Google was just a US company, but it is not – 14% of Google’s sales are in the UK according to its accounts – that’s £1,648m.
The vast majority of its sales outside the USA are actually made from Ireland which had 91% of its non-US market in 2007.
Latest accounts for Google in the UK are reported to show that it paid just £141,000 in tax on its profits in the UK in 2008.
That’s much the same as the year before. Which is very, very little indeed on UK sales of £1,648m.
Even stranger still, the accounts for Google in Ireland show it only paid €7.5m (£6.7m) of Irish tax on profits in 2008.
Ireland has a lower tax than the UK, at 12.5%, but this implies the Irish company – which bills almost half of all Google’s worldwide revenues – made a profit of £53m – which is less than a fiftieth of Google’s worldwide profits.
We’re now into the world of guesswork, but the guesswork may be helped by clues given in the ownership of Google’s Irish company.
It is owned by a company in Bermuda, which is a secretive tax haven where no tax need be paid on corporate profits.
How does the profit get there? I suspect that Google Ireland pays Google Bermuda for use of Google’s technology.
That’s fair enough – clearly Google has created something very clever. But two questions remain.
Is that technology so good that charges for it are enough to ensure no significant amounts of tax are paid in the UK or Ireland?
And is it right that Google should seem to avoid paying tax on the vast majority of its profits outside the USA as a result? Those are questions for Google to answer.
What I know is that if Google had made profit in the UK at the same rate that it made profit in the USA about £125m of tax would have been paid by it in 2008 on its UK profits.
There’s a lot we don’t know about Google’s finances and I’ll be candid, I don’t think that can be justified.
We need to make sure every multinational corporation is accountable in every place where it operates so we know where it makes its sales, where it records its profit and where it pays its taxes.
So, if doing no evil means being responsible I wonder if Google is really living up to its own proclaimed standards.
What is curious is this: Google implicitly seems to be acknowledging the power of unitary taxation in its tax reporting. It seems to report profits in proportion to sales in the US. But it seems to avoid doing so elsewhere.
