Public accounts committee says £130m deal seems ‘disproportionately small’ compared with size of UK business

This article is more than 4 years old

This article is more than 4 years old

Google’s controversial tax deal has been criticised for being “disproportionately small” by parliament’s public spending watchdog.

The new analysis of the deal to pay £130m in back taxes has been released amid claims that the French government is seeking about€1.6bn (£1.3bn) in back taxes from the tech company.

According to a report by the Commons public accounts committee, the UK deal cannot be properly assessed because of secrecy surrounding the negotiations with Google.

But the cross-party group of MPs found the settlement covering a 10-year period was “disproportionately small when compared with the size of Google’s business in the UK”.

The committee’s findings and the new reports from France will generate further questions for George Osborne, who claimed that the negotiation was a victory for taxpayers.



The chancellor also claimed Google’s settlement came thanks to his diverted profits tax (DPT), which was introduced last year to target multinationals artificially routing profits overseas. This claim was also later confirmed to be false.

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In the report’s conclusions, MPs called on HM Revenue & Customs to “lead the way in pressing for changes in international tax rules to prevent aggressive avoidance by multinational companies”.

The MPs said Google’s claim for greater tax simplicity was at odds with its complex operational structure, which appears to be aimed at minimising its tax liabilities. The company admits this structure will not change as a result of the settlement.

Meg Hillier, who chairs the committee, said: “Public anger has been palpable ever since this settlement was announced and we still don’t know the full details. Whether you call it secrecy or confidentiality, this lack of transparency does nothing to build confidence that big corporations are paying their fair share of tax.”

In the report’s conclusions, MPs said Google refused to commit to providing further evidence that would have allowed the public and parliament to assess if the right tax had been paid.

Facebook Twitter Pinterest Meg Hillier says Google’s claim for greater tax simplicity remains at odds with its complex operational structure. Photograph: Jonathan Goldberg/REX

“Google would not commit to providing further information at the evidence session ... we still do not know if Google paid the right amount of tax,” they said.

They recommended that HMRC should change the rules on confidentiality to open up multinationals to further scrutiny.

“HMRC should be prepared to go it alone if necessary to provide the means for parliament and interested parties to judge whether tax settlements reached are reasonable,” the report said.

Tax officials were criticised in the report for taking six years to negotiate the Google deal and were told by MPs to seek new powers to speed up their inquiries.

“[HMRC] should seek the power to impose penalties on companies which do not cooperate fully with its investigations when tax is in dispute,” it said.

The report states that most of the tax in dispute related to the application of transfer pricing rules, that £18m of the settlement was interest on the tax due, and that HMRC did not apply a penalty.



Google reduces its tax bill by using a set of subsidiary companies across the globe.



It moved its headquarters for Europe, the Middle East and Africa to Ireland in 2008 to benefit from the country’s lower tax rate on profits.



In Britain, its biggest market outside the US, Google is classified as having no “fixed base” so none of its sales are technically made in the UK.

It means when a British company buys a Google advert for the UK the money goes straight to Dublin, meaning Google pays little tax to the UK Treasury.

After paying Ireland’s lower corporation tax rate of 12.5%, international profits are then funnelled via Google Netherlands Holdings, taking advantage of generous tax laws there.



The profits are then sent to Google’s main overseas company, another Irish business domiciled in Bermuda – where the corporation tax rate is zero.

It also emerged on Wednesday that France is seeking €1.6bn in back taxes from the US internet company, according to reports by Reuters.

Britain is Google’s biggest foreign market, and the UK wing has four times as many staff as Google France.



The French authorities have been chasing Google for several years for transfer pricing. This month, the finance minister, Michel Sapin, ruled out striking a deal with the company, saying the sums he sought were “far greater” than those in Britain.

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Labour under Jeremy Corbyn has pushed for new powers for tax officials and an overhaul of confidentiality rules to force multinationals to pay more tax.



The shadow chancellor, John McDonnell, said the report showed it was “far too easy” to use loopholes to “pay the least amount of tax as possible”. He added:

“This is a damning report on a tax deal that George Osborne initially called a ‘major success’,.”

A HMRC spokesman said the tax-raising body attempts to be as open as possible within its statutory duty of taxpayer confidentiality.

“The penalty rules will change this year to better support those who play by the rules and the PAC has welcomed that,” he said.

Downing Street sought to defend the UK deal. A No 10 spokesman said: “The key point is that HMRC are clear that the £130m that they have got back from Google is the taxes that were owed and it was the correct amount of money to be paid.”