Last week, the Chancellor came out and triumphantly proclaimed a major success for Great Britain. ‘Was it a new trade deal with emerging economies, or perhaps was it an investment deal for new infrastructure in the North of England?’ I hear you cry. No, it was even better! He told the nation, with a smile on his face, that he had manage to get Google to pay tax.
A round of a applause for Mr Osborne, who told journalists that this was brilliant and that Google would be paying £130 million into the Treasury, which has been owed since 2005. Very nice, a huge political coup for George and a windfall for his little red box with the public thoroughly shown that the Government was tough on tax.
The story should have ended there, and many in the Tory press office are probably wishing that was the case. However, they clearly didn’t count on the men and women of the national press or the opposition casting a skeptical eye on the tax deal of the decade. Unsurprisingly, it has emerged that this most glorious triumph for the man hoping to replace David Cameron is not quite the pot of gold the public were led to believe.
You see ladies and gentlemen, Google’s UK-based sales team doesn’t actually sell anything in Britain. That privilege is in the hands of Google’s Ireland-based sales team with the UK team merely assisting Irish. Although this sounds unimportant because of the complexity of the UK Tax code, which runs into 17,000 pages, Google can only be taxed on its UK operation. This means that the majority of the profit is being diverted to Google’s European Headquarters in Ireland. Ultimately, this means that technically despite the UK being one of Google’s biggest markets, with sales of £3.8 billion – mainly through online advertising – the profit is actually being made in Ireland.
Google’s tax structure, it must be stressed is all perfectly legal [libel lawyers you can stop writing that writ now] but it’s complex and has come into sharp criticism from politicians and the media. The reason Google uses this structure is because Ireland has a lower corporation tax rate than Britain thus providing Google with a tax saving.
So what was the effective tax rate for Google with this great deal? Well everyone, it was an amazing 3%. Surely some mistake as the corporation tax rate in Britain currently stands at 20%. Sadly not, 3% is figure that has been rounded on. Shockingly, this figure has been jumped on by the media and opposition. Corbyn sensing blood at Prime Minister’s Questions last week made David Cameron look like he needed a glass of water to cool down due to the startled, slightly panting response he mustered. A rare accomplishment for the Labour leader whose PMQ’s performance is often lack-lustre when opposite Cameron in the Commons.
The criticism has subsequently grown louder and louder despite HMRC stating that Google is paying the “full amount due in law”. Conservative MP Mark Garnier, a member of the Treasury select committee, stated that this was a “relatively small” amount of money compared with Google’s UK profits. The former Labour chairwoman of the Public Accounts Committee, Margaret Hodge described the tax structure as “devious, calculated and, in my view, unethical”. Former Conservative Chancellor Lord Lawson has called for sales to be taxed instead to avoid this situation, meaning fundamental reform of UK business tax law.
With such all-round criticism, George Osborne’s announcement of HMRC’s deal could be seen as a faux pas which could have been avoided. Indeed in defence of Mr Osborne, until his new diverted profits tax comes into force, which will tax profits diverted away from Britain, there was little that could be done. Google’s Head of European operations, Matt Brittin did say that based on the new rules, Google would have to pay more tax in the future.
However with the public perception that multinational companies are getting a better deal compared to the local shopkeeper, George Osborne perhaps should have been less delighted with the deal.