28-01-2016, 09:14 #1
[EN] UK: The 'sweetheart' deal HMRC made with GoogleVanessa Houlder | Financial Times
January 26, 2016
Experts probe Google UK tax payment
When MPs lined up to criticise what they called a “derisory” tax payment by Google on Monday, some argued the tech company was paying just a 3 per cent tax rate.
David Gauke, a Treasury minister, rejected the claim, insisting “there is no lower, special rate for Google or any other taxpayer in this country”.
Even so, the settlement has once again raised questions about how much tax Google pays and comes ahead of possible moves to settle the tax bills of other companies such as Facebook. Experts are analysing the amount Google paid and the methodology likely to have been used to calculate it.
The claim that Google is paying tax at a rate of 3 per cent is based on the company’s global pre-tax margin — the ratio of pre-tax profits to revenue — of 26 per cent.
Sales from UK customers were $6.5bn (£4.56bn), suggesting a profit of more than £1bn from those earnings. As Google UK paid corporate tax of £46.2m in the 18 months to June 2015, that would mean an effective tax rate of about 3 per cent.
But this calculation is flawed, because it assumes — incorrectly — that profits are divided between countries according to their sales.
Instead, corporate tax is calculated according to the value added by the economic activity in a particular country.
Britain would only have the right to tax all £1bn of UK profits if they were all attributable to the efforts of UK salespeople and other workers; and none to the efforts of other employees such as the Californian coders.
Maya Forstater, a researcher on sustainable business who has often challenged campaigners’ claims on taxation, said Google’s US accounts show that 16 per cent of its costs are attributed globally to sales and marketing.
Ms Forstater thinks it is a rough guide to how much value is created by the sales and marketing activities related to UK revenues. If so, the tax due on the profits could be estimated at £32m which she says is “the ballpark of what was agreed”.
There were some features of the settlement with HMRC that took analysts by surprise. It was widely expected Google would be caught by the “diverted profits tax” introduced in April — a 25 per cent rate payable on profits artificially shifted overseas. However, the settlement terms meant the rate did not apply.
Some experts had also expected Google’s Irish business to be taxed as though it had a permanent establishment — or taxable presence — in Britain, particularly because Google said the settlement was “in line with the latest OECD guidance”.
Instead, it looks as though HMRC agreed a transfer pricing adjustment — a change in the division of profits between countries — instead of pressing the point about a permanent establishment.
A head of tax of a FTSE 100 company said this approach appeared reasonable.
He said: “Whereas HMRC had an arguable case under existing law that what the marketing company was doing was enough to create a UK permanent establishment of Ireland, they would have struggled to win it. The cleaner way of getting to a similar outcome would have been a transfer pricing adjustment.”
Regardless of whether Google is found to have a permanent establishment in Britain, there is little doubt Google’s tax structure will ultimately face significant changes.
The reason the foreign tax rate is so low is that big royalty payments — €10bn in 2013 — are paid to Bermuda, using a structure known as a “double Irish” that will be phased out by the end of the decade.
These payments are the main reason why Google had a foreign tax rate of just 8 per cent in 2014 — although this figure takes no account of the US tax due when the profits are repatriated.
The royalty payments underline the importance of intellectual property, rather than other activities such as sales, to digital companies — a big reason why the extra tax collected by governments such as the UK is likely to be limited.
Even so, some experts said they would not be surprised if HMRC presented Google UK with bigger bills in future. Jeremy Cape, a partner specialising in tax at Dentons, a law firm said: “ My conclusion is that Google is accepting the new international tax paradigm and will be paying much more UK corporation tax.”
He said if Google ended up paying a small amount of additional tax, it would raise questions about whether a shake-up in international rules has really changed things.
28-01-2016, 09:16 #2
Google: Governments make tax law, Google compliesPeter Barron | VP Communications and Public Affairs, Google
January 27, 2016
Sir, In all the coverage of Google’s tax settlement, little has been said about the international tax rules and how they work. Corporation tax is paid on profits, not revenue, and is collected where the economic activity that generates those profits takes place. So, if a British pharmaceuticals company sells medicine to Latin America, it is mostly taxed where those products are created, in the UK, rather than where they are consumed. The same applies to Google. As a US company, we pay the bulk of our corporate tax in the US: $3.3bn in the last reported year. What should Google pay in the UK? We pay tax based on the value added by the economic activity of our staff here, at the current standard rate: 20 per cent.
After a six-year audit we are paying the full amount of tax that HM Revenue & Customs agrees we should pay, including £130m in additional back tax. Governments make tax law, the tax authorities independently enforce the law, and Google complies with the law.
28-01-2016, 09:22 #3
Google £130m sweetheart could be probed by Europe "if asked"Kat Hall
28th January 2016
The EU's Competition Commissioner has said Europe would probe Google's £130m sweetheart deal with the UK government "if asked" - following growing calls for Brussels to scrutinise the deal.
The Scottish Nationalist Party has today written to Brussels to investigate the arrangement. Stewart Hosie MP said: "The truth is that we know very little about the settlement reached between the tax authorities and the company. These discussions have taken place in private, little detail has been revealed by the Treasury and the methodologies employed by HMRC are shrouded in secrecy."
The Public Accounts Committee has also today set a hearing date to exam corporate tax deals following the arrangement with Google for February 11.
Margrethe Vestager, the EU's Competition Commissioner, told the BBC’s Today Programme that the commission would be willing to look into the tax deal.
“If we find there’s something to be concerned about, if someone writes to us and says maybe this is not how it should be, then we’ll take a look,” she said.
Vestager said it was unfair that different rules apply to larger companies than those adhered to by small innovative businesses. Asked if the arrangement amounted to a "sweetheart" deal - a term used to describe an unusually favourable contractual arrangement - she said it was too early to say.
Seema Malhotra, Labour’s Shadow Chief Secretary to the Treasury, has also written to the National Audit Office calling on it to investigate the terms of the deal.
She said: "This process has taken over six years, and the outcome appears to have resulted in an agreement to pay a very low effective tax rate. This has caused understandable concerns about the impact on our public finances. Tax revenue not collected is revenue foregone – this has important implications for the funding of public services."
However, in a letter to the FT, Google defended its position. "In all the coverage of Google’s tax settlement, little has been said about the international tax rules and how they work. Corporation tax is paid on profits, not revenue, and is collected where the economic activity that generates those profits takes place," said Google's communications veep Peter Barron.
He added: "After a six-year audit we are paying the full amount of tax that HM Revenue & Customs agrees we should pay, including £130m in additional back tax. Governments make tax law, the tax authorities independently enforce the law, and Google complies with the law."
28-01-2016, 09:53 #4
UK PM Cameron under pressure over Google tax deal
@BBCr4today: UK is preparing itself "to become kind of a tax haven" says @EvaJoly MEP
Wed Jan 27, 2016
British Prime Minister David Cameron came under increasing pressure on Wednesday over a back tax deal agreed by Internet group Google that was hailed by his finance minister as a major success but dismissed as "derisory" by the opposition Labour Party.
Labour leader Jeremy Corbyn challenged Cameron to defend the deal, which he said represented a tax rate of just 3 percent on 6 billion pounds ($8.5 billion) of profits that Google, now part of holding company Alphabet Inc, has earned in Britain since 2005.
"Why is there one rule for big multinational companies and another for ordinary small businesses and self-employed workers?", he asked the prime minister in his weekly parliamentary question session.
Cameron did not comment on the 130 million-pound settlement, which covers 2005 to 2015 and which brings the company’s total tax bill to around 200 million pounds for the period, during which it had UK revenues of around 24 billion pounds.
However, he said he had been genuinely angry over Google’s failure to pay much tax, adding that this largely occurred when Labour was in power from 1997 to 2010.
"We’ve done more on tax evasion and tax avoidance than Labour ever did," he said.
Finance minister George Osborne, seen as a possible successor to Cameron, has said the settlement was "a victory for the action we've taken" against corporate profit-shifting.
Google has said it paid all the tax that was due. It says it declares little profit in the UK because most of its profits are derived from innovations invented in the United States.
"We pay tax based on the value added by the economic activity of our staff here," a Google spokesman said.
Profits from European sales are reported in Bermuda, which has a zero tax rate.
Domestic media have roundly criticized the tax deal and even vociferous opponents of Corbyn such as the tabloid Sun have backed Labour on the issue.
Rupert Murdoch, executive chairman of News Corp and 21st Century Fox Inc[NWSNA.UL], criticized the deal, tweeting that "Google et al broke no tax laws. Now paying token amounts for p r purposes. Won't work. Need strong new laws to pay like the rest of us."
His tweets set off a Twitter storm, with others criticizing Murdoch for meetings with the Conservatives, wondering about the taxes paid by Murdoch's companies, and even referring to some of the reporting tactics at his papers.
"Can't you get some journalists on this instead of hacking celebrities' phones and the like," tweeted a user under the handle @tradercoach.
Tax avoidance has become a hot political issue in Britain, where people question whether the burden of fixing the public finances has been fairly shared.
Since the deal was announced on Friday, Labour has called for an investigation by the National Audit Office, the Parliamentary Public Accounts Committee (PAC) has said it will investigate the deal and the Treasury Committee said it would examine the whole corporate tax system.
Google said it was prepared to testify at the PAC hearing, the date for which has yet to be confirmed.
28-01-2016, 10:02 #5
No desks in Dublin? Hundreds of Google execs are based in UK
Tax row: The reception of Google’s London office
HM Revenue and Customs has apparently accepted Google has ‘no fixed place of business’ in the UK
27 Jan 2016
Hundreds of top Google executives appear to be based in the UK - despite the firm claiming its European HQ is in Dublin.
The US tech giant has legally avoided paying vast sums of tax in Britain by claiming its European, Middle East and African (EMEA) headquarters are actually in Ireland, where most of its sales are registered.
But the firm has 273 of Google’s EMEA directors based in London, according to their profiles on the business network website LinkedIn - compared with just 79 in Dublin.
Google also has 50 EMEA vice presidents based in London according to LinkedIn, compared with just 15 in Dublin.
It raises fresh questions about the ‘sweetheart’ tax deal signed off by HM Revenue and Customs at the weekend.
HMRC has apparently accepted the Internet giant is based in Ireland and has ‘no fixed place of business’ in the UK.
But experts said the primary location of a firm’s senior executives should be a clear sign to HMRC of where it is really headquartered.
In a statement Google said: “We are paying the amount of tax that HMRC agrees we should pay. Governments make tax law... and Google complies with the law.”
28-01-2016, 20:40 #6
Google UK staff earned average wage of £160,000 each in 2015
Google paid £562m including share-based bonuses to 2,300 UK staff over an 18-month period. On a pro-rata basis over 12 months, this works out as an average of £160,000 per head.
Former public accounts committee chair Margaret Hodge says figure shows Google UK is ‘not a back office support operation’
Thursday 28 January 2016 20.24 GMT
Google’s 2,300 staff in the UK earned an average wage of £160,000 each last year, despite the group’s insistence that its British operation is a modest outpost of the company’s global empire.
Margaret Hodge, the former chair of the public accounts committee, said high pay among London staff was further evidence that Google’s “complex structure of companies is a sham”. Its UK employees mainly provide marketing and support services to offices in Dublin.
“This unmasks the reality of their business,” Hodge said. “[Google UK] is not a back office support operation. These are clearly people who are paid a lot because they add value – selling advertising, closing deals and developing new products.”
The technology giant has been heavily criticised for routing £4.6bn of UK sales through Ireland, then onwards through a maze of companies in the Netherlands and Bermuda, so as to pay very little tax in Britain and elsewhere.
The UK tax authorities have for years been criticised for accepting Google’s claims that its UK staff do not do business with British advertisers. A £130m settlement reached with HMRC last week effectively made it clear that Google would not be challenged on this point.
Barney Jones, a tax whistleblower who worked for Google’s UK sales team for four years, said Britain was a major profit engine for the US multinational. “They do a lot of high-value sales, marketing and engineering – all out of London. I find it utterly baffling that HMRC accept[s] that these people do almost nothing worthwhile.”
He said staff in London did more specialist work than the 5,000 employees in Dublin, many of whom work in contact centres, where they respond to advertisers with email inquiries.
On its recruitment webpage, Google UK tells jobhunters: “Folks here on the tech side have their hands on some of most exciting technical challenges in the business, entertainment and financial industries.” Software engineers in London work on some of Google’s main products including YouTube, Google Play, Android, AdSense and Search.
Accounts for 2015 show that Google UK paid wages of £562m over an 18-month period, including £148m in share-based bonuses. Calculated on a pro-rata basis over 12 months, the salary bill works out at an average of £160,000 per head. It was spent on 1,075 marketing staff, 799 staff in research and development, and 455 managers and administrators. Two directors – one based in Dublin, another in the US – did not draw a salary from the UK company.
Matt Brittin, who heads Google’s European operations and lives in the UK, is not thought to be a director or employee of the British company. Brittin has been the public face of Google as it has sought to defend its aggressive tax structures amid widespread condemnation.
Three years ago, during a heated public accounts committee hearing, Hodge told Brittin: “You are a company that says you ‘do no evil’. And I think that you do do evil.”
Hodge was referring to Google’s longstanding corporate motto, “Don’t be evil,” which appeared in its $23bn US stock market flotation prospectus in 2004.
Google books sales from UK advertisers through its Irish arm before bouncing the income through the Netherlands and back to Ireland and Bermuda. The complex structure means it pays little tax on non-US earnings. The company is expected to announce that its offshore cash reserves have reached $43bn on Monday.
Accounts for Google UK show that the British unit paid £290m for a plot of land near Kings Cross station in London, where it plans to build a luxury office block to house up to 5,000 workers. Designs including a rooftop were said to have been rejected last year as too “boring”. An additional £14m was paid to extend the development period.
Accounts also make it clear that Google’s controversial £130m settlement with HMRC, which covers a 10-year period, includes interest payments. It is understood that back taxes were about £117m, to which interest of £13m was added.
The settlement was initially heralded as a triumph by George Osborne, the chancellor, but has since been savaged by critics who claim it is a disappointing “sweetheart deal”. In particular, the agreement appeared to leave in tatters Osborne’s promise to prevent technology companies such as Google going to what he called “extraordinary lengths to pay little or no tax” in the UK.
Irish ministers have also pledged to stamp out tax avoidance structures, such as the so-called “Double Irish” – where income is routed through Ireland, the Netherlands and Bermuda – by introducing new rules with which multinationals must comply by 2020.
Changes to Irish tax rules, however, have not stopped global corporations from flocking to Dublin, attracted by its ultra-competitive tax regime. Last year, a record 213 new investments by multinational corporations helped Ireland become one of the world’s fastest-growing economies, according to business promotion quango IDA Ireland.
Among those pouring fresh cash into the Irish economy during 2015 were Airbnb, Zimmer, Dell, Vodafone, Apple, Facebook, Marsh & McLennan and Bristol-Myers Squibb. The total number of major investments was up 8%, with 94 of those coming from companies investing in Ireland for the first time.
About 187,000 people – one in five private sector workers in Ireland – now work for a multinational, an increase of 12,000 in the past 12 months. A further 131,000 Irish jobs are indirectly dependent on foreign investment, according to IDA Ireland.
Ten years ago, Osborne underlined that he wanted Britain to echo Ireland’s aggressive tax policy to attract more investment to the UK. “Ireland stands as a shining example of the art of the possible in long-term economic policymaking,” the then shadow chancellor said. “I will be asking Google executives today why they set up in Dublin, not London. It is the kind of question I wish the [Labour] chancellor of the exchequer was asking.”
Since becoming chancellor, Osborne has made good on his promise to transform the UK’s corporate tax regime into the most competitive in the G20. Several multinationals, including insurer Aon and Starbucks, have moved their European headquarters to Britain as a result.
07-02-2016, 09:33 #7
Who will speak for Brittin?
Sunday 7 February 2016
Here’s Matt Brittin, Google’s boss in northern Europe, speaking in 2012: “Google set up in London 11 years ago now and it was a natural choice. It is such a cosmopolitan international city and there is a huge array of talent you can access – and that’s the most important thing for Google when building its teams outside the US.
“Also, the UK is the No 1 internet economy in the world. We spend more money buying things online in this country than anywhere else on a per head basis. So actually it has been a great place for us. We’ve been so successful in the UK that we want to try to give something back."
You can still watch that clip on YouTube and the sentiments might be worth comparing with what Brittin ends up telling the parliamentary accounts committee this week, when he’ll have another go at explaining Google’s tax affairs to MPs.
In 2013 he described how the London HQ – once so successful he’d felt moved to promise “something back” – was in fact effectively working for a higher power in a lower tax zone. Since then, January’s much criticised agreement between Google and the UK tax authorities means the website will pay £130m in back taxes – a deal that’s inexplicably found few backers, save for George Osborne dubbing it a “victory”. Actually, the chancellor was right: it’s a victory for Brittin.
Osborne’s monkey business
As George Osborne found a victory in the Google deal, he may yet be able to unearth the odd positive in the manufacturing figures that will be published this week.
It will be tricky: manufacturing has been in recession and there seems to be more bad news on the way. The UK steel industry has shed thousands of jobs as it suffers at the hands of cheap Chinese imports, and engineering groups that manufacture kit for oil companies are feeling the pinch too.
But China may provide a welcome distraction this week, as the country celebrates the start of the year of the red, or fire, monkey. Those born in the year of the pig (such as the chancellor) seem to be in line for a rosy 12 months.
Chinesefortunecalendar.com predicts: “Basically, your career luck is good. You will realise your job is much easier than before... You have better knowledge to handle your position. But you still need to stay alert. Any negligence on your duty will ruin your reputation and career development.”
Still, Osborne shouldn’t get too cocky. When it comes to health, the website foresees “diabetes, diarrhoea, bladder and neuralgic pain”.