The Sunday Times reports this morning that:
Barney Jones, 34, who worked for the internet search giant between 2002 and 2006, has lifted the lid on an elaborate structure which diverts British profits through Ireland to the Bermuda tax haven.
Although Google's London sales staff would negotiate and sign contracts with British customers, and cash was paid into a UK bank account, deals were technically booked through its Dublin office to minimise its liabilities here. Jones, a devout Christian and father of four, is ready to hand over a cache of more than 100,000 emails and documents to HM Revenue & Customs (HMRC), detailing the “concocted scheme”.
Much more follows.
The problem with a lot of tax planning that looks too artificial to be true is that it's almost impossible to deliver in practice. Will that be the undoing of Google?
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
There are links to this blog's glossary in the above post that explain technical terms used in it. Follow them for more explanations.
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Buy me a coffee!
Richard, this goes to show the importance of the work Margaret Hodge and the PAC are doing in shining a light on this dark art. Each time these cheats give evidence in public they open up a crack in the edifice. Also shows why full transparency is the only way to stop these frauds.
Agreed!
It looks to me like google has created artificial structures on paper then blatantly ignored following those structures in reality. Furthermore they have then lied about it.
Thus are google’s actions in truth tax evasion rather than avoidance?
Could we expect back taxes, penalties, fines, etc being imposed by HMRC, and the possibility of a tax evasion prosecution being sought?
My interest in this is from an educated layman’s point of view.
If Google have got it wrong expect fines
But they’ll never be published
And any tax deal will not be either
HMRC doesn’t go against big fish. It will always settle
Ernst & Young, who set up both the Google’s and Amazon’s structures recently pleaded guilty of tax evasion in the US over a ‘tax avoidance (shelter)’ scheme the IRS consdered evasion.
Ernst & Young Pays $123 Million, Avoids Tax Shelter Prosecution
In a deal with the government signed this week, accounting firm Ernst & Young agreed to pay $123 million to the government and admitted to wrongful conduct by some of its partners and employees in connection with the firm’s participation, from 1999 to 2004, in the promotion of abusive tax shelters to rich individuals. In return, the firm itself won’t face criminal charges.
As part of a non-prosecution agreement that U.S. Attorney for the Southern District of New York Preet Bharara announced today, E&Y acknowledged that in league with various law firms, banks and investment advisors, it developed and sold four different tax shelter products designed to save 200 high net worth clients $2 billion in tax. For its efforts, E&Y received gross fees of about $123 million–the amount it’s now forking over to the government. As part of its deal, E&Y agreed to continue to cooperate with prosecutors and to keep certain restrictions on its tax practice. The accounting firm, one of the four largest in the world, has cooperated with the government investigation since 2004, but acknowledged in the agreement that E&Y employees misled the Internal Revenue Service when it first began investigating the shelters.
The E&Y deal is just the latest in a long line of settlements relating to the promotion of over the edge-tax-shelters during the late 1990s and early 2000s. In 2005, KPMG agreed to pay what was then a record $456 million fine in a deferred prosecution deal covering its role in promoting shelters. Deutsche Bank agreed to pay a record $554 million in a deferred prosecution deal in 2010. And last June, accounting firm BDO USA paid $50 million, and admitted generating $6.5 billion in phony losses in its own deferred prosecution agreement. In a different line of tax abuse cases, in February 2009, Swiss Bank UBS entered into a deferred prosecution deal and paid $780 million in fines, for its role in helping Americans hide assets offshore. Deferred prosecution, also known as pretrial diversion, has been the feds’ preferred method of dealing with wrongdoing by prominent corporations since the Department of Justice came under fire for causing the 2002 collapse of accounting firm Arthur Andersen, which was convicted of obstruction of justice in the Enron scandal. This past January, Switzerland’s oldest bank, Wegelin & Co., went out of business after it was forced to plead guilty to helping to hide $1.2 billion for American tax cheats.
While the E&Y settlement might seem like it was late in coming, both civil and criminal litigation related to the tax shelter craze continues. Just this week, for example, a Louisiana federal judge shot down a shelter Dow Chemical used to create $1 billion in phony deductions between 1993 and 2003. And today, a Manhattan federal judge sentenced Donna Guerin, 52, to eight years for her role in promoting tax shelters while an attorney with the now defunct Jenkens & Gilchrist law firm. Guerin and three co-defendants were convicted of tax fraud in 2011, but later Guerin and two of her co-defendants were granted a mistrial as a result of misconduct by a juror–ironically, a law school graduate who lied about her background. Guerin later decided to plead guilty, while the other two, including former Jenkens & Gilchrist partner Paul Daugerdas, are scheduled to be retried in September.
http://www.forbes.com/sites/janetnovack/2013/03/01/ernst-young-pays-123-million-avoids-tax-shelter-prosecution/
Looking forward to Amazon’s turn.
Me too
Google’s big mistake was opening a UK office in the first place. The easiest way to avoid creating a permanent establishment is to avoid having any establishment. It is madness to rely upon staff being careful not to create a permanent establishment on your behalf. The next move for Google should be pretty obvious.
According to Mr Brittin, 60-70% of Google’s revenue routed through Ireland to Bermuda accrue from “aspects of sale carried out by UK (London) based staff. So without “opening a UK office in the first place” they cannot get this revenue.