Internet giant Google has agreed to pay £130 million in back taxes after the UK tax authorities conducted an ‘open audit’ into its accounts. The payment will include money owed since 2005 and is the result of a six year inquiry conducted by HMRC. Google is just one of several international companies who have been accused of avoiding tax, even though they have had millions of pounds worth of sales in the UK.
Senior figures at the company which is based in the USA said that they would follow new rules which would see them pay more tax. The head of Google Europe told the media that tax rules are changing internationally with the UK Government taking the lead, so the company would be following the rules to make sure that they pay the right amount of tax.
HMRC chose to act after there was outrage over the amount of tax that large corporations pay in the UK, particularly those who have headquarters abroad. The UK is one of Google’s largest markets and paid £20.4 million in tax in 2013, despite the fact that it made sales of over £3 billion that year. The company has also been criticised for its complex tax paying structure. The European headquarters are in Ireland where the corporation tax rate is lower than it is in the UK. Overseas, the company has used structures in Bermuda where the rate of corporation tax is zero. These moves are legal and Google, which pays the majority of its taxes in the USA, says that it has abided by international tax rules.
Google has agreed to change the way that its accounting system operates so that a higher amount of their sales activity is registered in Britain rather than Ireland. It will also use a different structure to account for its profits between 2005-2015.
The European CEO said the company will pay £130m ‘in respect of previous years’ when the rules were to pay ‘in respect of profits that you make in a country’, adding that going forward the company will be paying for sales to UK customers, which are made mostly through advertising. When pressed to say if the back payment meant that Google’s critics were right in their complaints over the amount of tax that the company has been paying, the CEO said they had not, citing the company were constantly abiding by the right rules.
A spokesperson for HMRC said that the conclusion of the enquiries had led to them scoring a ‘substantial result’ stating that ‘multinational companies must pay tax that is due’ and that HMRC would not accept any less. Google isn’t the only US-based company which has faced criticism for the amount of tax that it pays in the UK: Starbucks, Amazon and Facebook have also come under fire.
Not everyone was happy with the settlement, with a Labour MP calling for HMRC to publish full details of what Google owed. A Conservative MP said that the amount was ‘relatively small’ in comparison to how much profits the company made in the UK.
To find out more about corporation tax, call the corporation tax contact number.