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Google has agreed to pay £130 in back taxes to the UK government after insisting for years that it was fully compliant with UK tax laws.
Google is among several US multinationals – such as Facebook, Amazon and Starbucks – that have come under fire for their tax practices in the UK and elsewhere in Europe.
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The deal comes two and a half years after the Public Accounts Committee (PAC) called for a full investigation of Google’s alleged tax evasion practices in the UK – and just over a year since chancellor George Osborne said the government was going after technology firms that use “aggressive” tax-avoidance schemes.
In June 2013, the PAC called on HM Revenue & Customs (HMRC) to investigate Google, which generated about £11.5bn in revenue in the UK between 2006 and 2011 – yet paid only £10m in corporation tax in that period.
In 2013, Google paid £20.4m in UK taxes, despite recording sales of £3.8bn.
The deal relates to tax obligations dating as far back as 2005 and follows an investigation by HMRC into the tax practices of several large US-based technology firms, reports the BBC.
The company will now pay tax based on revenue from UK-based advertisers that “reflects the size and scope” of its UK business, Google said in a statement.
Google has in the past defended its tax arrangements by claiming that advertising sales take place in Ireland, where its European operations are headquartered, not in the UK where tax rates are higher. But in 2013, Google staff told the PAC that UK-based employees sold advertising.
Read more about Google’s tax issues
- Google’s executive chairman Eric Schmidt says the company is tax law compliant and key to electronic commerce expansion in the UK.
- Google has been accused of avoiding paying tax on its £1.6bn UK revenues.
- It is common practice - and not illegal - for international firms to use accounting tricks to reduce the declared profits of their UK operations.
OECD addresses tax avoidance
However, Matt Brittin, head of Google Europe, said the deal does not prove that the company avoided paying tax in the past.
"We were applying the rules as they were, and that was then and now we are going to be applying the new rules, which means we will be paying more tax,” he told the BBC, which first reported the deal.
According to Google, the settlement with HMRC reflects changes in the international tax system as a result of a long-running debate on the way multinational companies are taxed, and is in line with recent guidance by the Organisation for Economic Co-operation and Development (OECD).
In October 2015, the OECD announced plans to crack down on global tax avoidance by moving profits to countries to lower rates of tax.
Google hopes to end the long-running row over taxes with its deal with HMRC, but shadow chancellor John McDonnell said the public would be "sceptical" about the "derisory" settlement – and called for the National Audit Office to investigate the deal, reports the Telegraph.
McDonnell said he would ask for details of the deal from chancellor George Osborne. He criticised HMRC for agreeing to a deal that will recoup a "relatively small amount" compared with what should have been paid.