Late Friday evening Google declared a change in its taxation policy, announcing that it will pay £130m and accept a greater burden of UK tax on future company revenue.
In a statement the internet giant said: “We will now pay tax based on revenue from UK-based advertisers, which reflects the size and scope of our UK business.
“The way multinational companies are taxed has been debated for many years and the international tax system is changing as a result. This settlement reflects that shift and is in line with recent OECD guidance.”
Although details of the deal are vague, a Google spokesman indicated that the firm will pay £46.2m worth of tax on UK profits of £106m for the 18 months to June 2015, as well as back taxes owed for the previous decade.
The announcement marks a dramatic shift in policy from Google, who had previously vigorously defended their tax position. Last year Eric Schmidt, executive chairman of parent company Alphabet, stated that the company was doing nothing wrong as it conformed to global tax law.
'A substantial result’
Commenting on the deal, an HMRC spokesman said: “The successful conclusion of HMRC enquiries has secured a substantial result, which means that Google will pay the full tax due in law on profits that belong in the UK. Multinational companies must pay the tax that is due and we do not accept less."
“HMRC enforces the tax rules impartially, irrespective of the size or structure of the business. Last year, our compliance activities yielded £26bn in extra tax, including £7.3bn from the largest and most complex businesses.”
Chancellor George Osborne also hailed the deal, calling it a ‘major success’. Speaking at the World Economic Forum in Davos, Osborne said: “We’ve got Google to pay taxes and I think that is a huge step forward and addresses that perfectly legitimate public anger that large corporations have not been paying tax.
“I hope to see more firms follow suit and of course I’ve introduced a diverted profits tax which will require this going forward. So I think it’s a big step forward and a victory for the government”.
However, the move has come in for criticism from many quarters. Speaking on BBC Radio 4’s Today programme, Shadow Chancellor John McDonnell called for the National Audit Office to examine details of the deal. “People will be sceptical about what looks like a sweetheart deal”, said McDonnell, adding that in his opinion HMRC had appeared to settle for a “relatively trivial amount of money.”
The deal has also come under fire for potentially undermining efforts to tackle global tax evasion. Prem Sikka, professor of accounting at the University of Essex, told the Guardian that the deal raised “more questions than answers”.
“We need to know how they came to this figure of £130m”, said Sikka, who is currently undertaking a review of HMRC for Labour. “The UK corporation tax rate in 2005 was 30% and is now 20%.
“We could do lots of averages but let us be generous and assume that the average rate for the period is 25%. That would mean that on its estimated £7.2bn UK profit Google should have paid corporation tax of £1.8bn. At best, it paid about £200m.
In the same report The Guardian stated that it understood HMRC is close to similar deals with fellow corporate giants Facebook and Amazon.
Reaction from AccountingWEB members and contributors was similarly scathing, with Norman Younger comparing the deal to the rules of ‘Mornington Crescent’, the notoriously vague round of the BBC Radio 4 panel game ‘I’m sorry I haven’t a clue’.
Meanwhile on Any Answers AccountingWEB member Brunel doubted whether Google’s founders Larry Page and Sergey Brin will be losing any sleep over the deal, while mr. mischief broke down the figures for which he believes Google should be paying tax. “In my view this stuff really isn't anything like as hard as these so-called tax geniuses make it out to be.”