MPs from the major parties have criticised the government for accepting a deal with Google to pay £130m in tax covering a 10-year period during which the search company generated several billion in the UK.
Steve Baker, Conservative MP for Wycombe, said during a House of Commons debate that his own party's arrangement with Google indicates a broken corporate tax system.
“Does the minister agree that, in the mad world of corporation tax on international companies, this sum of money is at once derisory, substantial, lawful and completely unacceptable to the public? And will he therefore also agree that it is time for a complete overhaul of the corporate tax system?”
Dennis Skinner, Labour MP for Bolsover, took the stance that Google is getting off its tax duties lightly in the UK.
“Why, on the one hand, should Italy put in a claim for £1bn from Google while Britain, on the other hand, is prepared to settle for a paltry £130m? It is not very good for Cameron, is it?” he asked.
Green Party MP Caroline Lucas also slated Google for making use of UK public infrastructure without contributing enough in taxes to support it.
“Does the minister recognise that people’s anger is very legitimate and even more justifiable given that Google is effectively free-riding on publicly funded infrastructure, not least the £1.2bn the government has invested in superfast broadband?
"And may I urge him again to make sure these calculations are put in the public domain so people can see how the figures are arrived at?” she said.
The debate follows a six-year inquiry conducted by HMRC into Google’s tax affairs in the UK, dating back to 2005.
Google has paid tens of millions in corporation tax over the past decade, yet these sums are only a small percentage of the billions the company generated from advertising in the UK.
Google is not dodging taxes, as corporations can avoid hefty bills through complex international tax structures in which they pay tax at one rate in one country and at another in others.
The company's European headquarters is in Ireland, where it is subject to lower corporation tax than in the UK and therefor lower tax bills.
Corporation tax is charged on a company's profits, and one trick to avoid paying the average rate of around 20 percent is to report small net profits. This can be achieved by paying employees huge bonuses that erode the bottom line, as was the case with Facebook and its UK tax avoidance.
Other methods involve hiding profits in legal tax havens such as Bermuda and the Cayman Islands by registering a business as separate companies. This means that those based in higher tax regions appear to make little taxable profit.
Corporations thereby end up paying single figure percentages on profits, some as little as three percent.
The backdated tax bill for Google may be the significant sum of £130m, but it averages out over a decade to £13m a year, a rather small percentage of the £3bn in UK advertising sales that Google generates in a year.
Google’s head of Europe, Matt Brittin, explained that the company will change the way it carries out its tax activity, which will involve paying tax in respect of the sales it generates in the UK, rather than just profits.
"The rules are changing internationally and the UK government is taking the lead in applying those rules, so we'll be changing what we are doing here. We want to ensure that we pay the right amount of tax,” he told the BBC.
However, this is not likely to appease the MPs, some of whom, like Labour’s Meg Hiller, criticised HRMC for letting major corporates get away with meagre tax payments while chasing normal taxpayers.
Technology corporations are increasingly coming under fire for tax avoidance. Amazon was forced to bend to pressure from European countries and start paying higher levels of tax on sales.
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