Many will be familiar by now withe the Google tax story. If you're not, I've written an ebook on it, available here. As I explain there, the essence of Google's claim is simply. Despite the fact that they have large numbers of staff in the UK whose job it is to 'market' Google's advertising they say they sell nothing. The claim made by Google is, as was said by one of its senior managers to the Public Accounts Committee last December, they sell nothing in the UK. All the sales made to UK customers are from Ireland and the UK staff, it is said, have nothing to do with them even though they considerably outnumber the Irish sales team.
The claim is vital. What Google says as a result of suing this structure is that the Google UK operation merely services the Irish operation that makes all the sales. So the UK operation gets a small commission on the total value of the sales it sends Ireland's way and it so happens almost no tax is paid on that. And it so happens that hundreds of millions of potential profit in the UK are lost to the sight of HMRC as a result, as I have argued since 2008.
That's always seemed incredible. It's even more incredible that HMRC have believed it. But they have.
And now Tom Bergin at Reuters, the man who brought us Starbucks, has done some more digging and given real reason top doubt the Google story. You have to read the whole story to get the feeling for the scale of his allegations. But amongst the things he's found are Google UK advertising for sales staff - which is odd when they don't sell. And staff having sales quotas. Which is also odd when they don;'t sell. And he funds there are dedicated support teams in the UK for the big customers - which looks like selling to anyone who knows anything about sales.
What Tom's saying is that he does not believe Google's claims. He thinks there is a permanent establishment of the Irish operation in the UK. And if there was it would then be subject to UK tax.
Margaret Hodge believes him. She's quoted as saying:
Margaret Hodge, chairwoman of the Public Accounts Committee, which heard Brittin speak in November, said the fact Google told parliament it does not sell in the UK while advertising London-based jobs for salespeople is a "very serious" matter. The discrepancy raises questions about whether Google does operate within the law, she said, and whether it misled parliament - a rare offence which in the past has cost government officials their jobs.
"It's difficult to reconcile the statements made by the witness (Brittin) and the evidence Reuters has uncovered," Hodge said. She said she plans to recall Brittin to appear before her committee. "We will need to very quickly call back the Google executives to give them a chance to explain themselves and to ensure that actually what they told us first time around is not being economical with the truth."
I'm going to look forward to that.
I hope she also asks HMRC how they came to their view. But they, of course, won't answer. They don't have to explain their cosy deals. Google will. Thank heaven for Margaret Hodge.
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interesting, and will certainly be enlightening when they go back before the PAC (not sure if they can be compelled to attend can they?)
I would assume they would say that the UK staff are agents of Dublin and are merely facilitating the paperwork and are under very strict rules to negotiate within very narrow guidelines set out by Dublin – for which they get paid a fee……………
They will say that
But Reuters have looked for the realities
The most important revelation here for me, as an inspector in HMRC, is the comparison he made with the French approach of investigating these structures for fraud in contrast to HMRC’s approach of always seeing it as a civil rather than a criminal matter. It messes up our investigation – for example our powers to obtain information and documents are severely restricted and we cannot pierce the veil of legal professional privilege so lawyers hide the true facts of the fraud/evasion – and when the matters gets to a tax tribunal (instead of the Crown court) the judges are confused and everyone dance on the pin head of the literal meaning of the words of the legislation.
Bergin reports that HMRC will not say when they last investigated a multinational for fraud. I can tell him – never! The last serious fraud investigation over “tax avoidance” was the Rossiminster affair in the late 70s. In fact if anyone bothers to check our publications on our approach to taxing large business, they will find that the policy is that “multinationals will not engage in evasion because it will depress their profits and adversely affect their share prices”! Utter nonsense!
When The Guardian exposed Barclays Capital avoidance scheme and they got an injunction which Wikileaks later breached, there was panic at 100 Parliament as senior managers feared that trouble makers would ask why we are no conducting a fraud investigation. As it happened, that did not materialise.
Sorry for typos – typing under pressure and can’t revise!
Boycott Google by using another search engine. I now use ixquick.com which is very good. Mind you, I don’t know if they pay their tax either but the sort of market domination Google enjoys is reason enough to change by itself.
By using a Google search engine we are not directly increasing the coffers – except for the fact that the marginal increase in users bolsters ads! Will think about changing.
In the interest of balance.. because I usually find myself challenging accusations which I think are weak or unwarranted.. I’d absolutely agree that this looks dodgy. It will be interesting to see how it develops. Have google lied to HMRC (if so, that makes this evasion not avoidance) or have HMRC incorrectly interpreted what’s happening? And why on earth would a sophisticated company which has structured itself for tax efficiency (a fact not disputed, even by Google) be so dumb as to not follow the rules of that structure?
Either way, it’s nice to see some genuine research and informed commentary.. rather than the moralising and grandstanding that’s been the main feature of the PAC.
Well you’re wrong about the PAC still
Lee T,
If you read between the lines of Monk’s comments, you will see that it is possible that (a) Google lied to HMRC (if so, that makes this evasion not avoidance) AND (b) HMRC incorrectly interpreted what’s happening.
Here’s an earlier report by Tom Bergin on “How the UK tax authority got cosy with big business”. http://uk.reuters.com/article/2012/12/27/uk-tax-hmrc-idUKBRE8BQ03420121227
It includes the following:
Some current HMRC staff say the UK authority simply underestimates how important it is for big business to try to minimise the taxes it pays. A current 6-page internal staff guide on taxing large corporations seen by Reuters states that large companies are unlikely to conceal earnings to evade taxes.
“It is not in their interests to suppress profits because of the impact on share price,” says the note.
Kimberly Clausing, Professor of Economics and an expert on corporate tax avoidance, dismisses this. “There are huge incentives to suppress the income reported for tax purposes in all the higher tax countries and to have it reported instead in places with lower or no tax,” she said.
In other words, if Google lied, HMRC would not have detected it because their policy is that large business do not evade. I’m sure Mike Clasper said as much to the PAC when he was HMRC’s Chairman.
Why did Starbucks change the rate of interest they pay on their inter-company loans from 7% to 5% or so when HMRC asked questions after a few years and yet HMRC didn’t bother to consider whether the returns filed on the basis of the 7% were deliberately wrong and thus fraudulent? Because it is not their policy to look for evidence of evasion against large business. So the large business dominated Board are looking after their own.
So every company rumbled, as Eon did in Richard’s piece in the SUN yesterday invariably says: “we showed HMRC the full facts; so we complied with the law”. We have to question this and ask them to waive taxpayer confidentiality and show us the papers. HMRC simply cannot be trusted.