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Google and HMRC reveal tax deal

25th Jan 2016
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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”.

‘Sweetheart deal’

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.

Notoriously vague

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.”


Replies (5)

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By Justin Bryant
25th Jan 2016 09:55

I assume

Google have coughed up due to poor implementation in their tax structure re having a UK PE. They would have probably paid £500m to HMRC just to stay out of court (you don't see many PE cases in the tribunals).

Thanks (1)
By The Minion
25th Jan 2016 12:12

so does this mean that

i can now average out the profits of the various clients who undertook DOTAS planning in the same period and HMRC will accept a payment of a fraction of the true liability?


Is there something in any legislation that says every tax payer should pay the same amount of tax on the same profit if they are in the same tax regime? I know Human Rights aren't supposed to impact on tax but surely there is something somewhere that makes all tax payers responsible for paying the same "right" tax every time?

Thanks (2)
By Ian McTernan CTA
25th Jan 2016 13:02

Simplify the rules

What this highlights is that the tax rules have become way too complex and unfit for purpose.  Google has done nothing legally wrong, and all it is doing now is moving some of the profit so that it falls to be taxed in the UK rather than wherever the main company is based (probably Ireland, a tax haven) in order to appear more socially acceptable.

I wonder what the total number of jobs and piles of other taxes have been paid by Google and it's associated suppliers and companies, rather than concentrating solely on a definition of 'profit'.

What needs to happen is for the whole tax system to be made a lot more simple, and for an international agreement on the taxation of profits- which would take 10-15 years to get agreement and ratification on...


Thanks (2)
By ShirleyM
25th Jan 2016 13:38

SME businesses employ more people

I wonder what the total number of jobs and piles of other taxes have been paid by Google and it's associated suppliers and companies, rather than concentrating solely on a definition of 'profit'.

Overall, SME's employ 1.5 times the number of people employed by big business. They incur the same employment costs and are unlikely to have the ability to transfer the profits out of the country, so still pay Corporation tax/Income tax in the UK.

Transfer pricing, and the like, makes the playing field unlevel and gives the multinationals an unfair advantage, which is not good for the country or their home grown competitors. Level the playing field and it may give the smaller businesses better profits, and they would probably pay more tax in the UK instead of it being transferred to another country. :)

Thanks (3)
Chris M
By mr. mischief
26th Jan 2016 08:44

Stuff the international agreements!

The UK is a sizeable economy in its own right.  We should, in my view, have asked Google for more like a billion in back taxes.  This is quite simply based on their reported Wall Street net profit margin multiplied by their sales in the UK since 2005, less a suitable share of their investment in R&D and so forth.

We simply say to Google, pay the billion or we block your servers and reduce your UK sales to as near zero as we can manage.  Ditto Amazon, Starbucks and all the rest.

We should be leading on this.  We could probably get Obama on board with something like this, obviously if Trump or some similar twerp becomes President we can forget it.

Providing the Google share price will go down less by paying the £1bn than if their UK sales go to zero, we get the billion.

Thanks (2)