How much UK tax should Google pay?
Google UK Limited has filed accounts with Companies House this week which has sparked lots of debate online. Within the accounts, Google disclosed that it paid £44m in corporation tax during 2019 on £1.6bn revenue. The other eye-catching number was that google employees were paid on average £234,000.
While the general view is that Google UK is underpaying when it comes to UK Corporation Tax but being honest this is not evident from looking at the UK set of accounts. The reason for this is that Google's tax advisors use its global web of companies to move revenues and costs around the globe with the objective of minimising its overall tax bill. Obviously it is not just Google doing this, all multinational corporations engage in corporate tax planning.
HMRC and other national tax authorities are now targeting profits of digital companies through digital services taxes. Those in larger jurisdictions are of the view that online businesses should be taxed on the profits of their activity within those countries. Just for fun we MJH Accountancy have dug up the latest information to allow us to estimate how much tax Google would pay HMRC if all UK revenues were booked through it's UK business.
The last time Google publicly disclosed revenue made from UK operations, it made $7,787bn in 2016 which accounted for 9% of its business at the time. Translated that to GBP using 2016 fx rates you get £5,295bn. Let's UK YOY sales growth is in line with the 10% disclosed in 2016 gives 2019 turnover of £7bn on UK business.
Next step is to work out operating costs. Google parent company Alphabet Inc made an operating profit margin of 21%. Assuming this is consistent globally would give the UK business a taxable profit of £1.5bn in 2019. Corporation Tax at 19% means that per the HMRC's view of the tax landscape Google UK should be paying £284m. Google's tax advisors saved it approximately £240million in 2019.
What would the impact of Digital Services Tax have been?
Digital Services tax was introduced by HMRC on 1st April 2020. 2% tax will be levied on Google revenue generated from UK customers. If this was in place in 2019 it would have regenerated £140bn revenue for the exchequer or 60% of Google's theoretical tax bill.
From HMRC's point of view, digital services tax makes a lot of sense. It is easy to implement (can likely be done in line with VAT returns) and will limit the scope for digital service companies to reduce their tax payments through international recharges. The rate can be increased if needs be and there is no reason why it would not be extended in the future if implemented correctly. Watch this space