Google Ordered Back To UK Parliament To "Explain Itself" Following Investigation

DavidGilbert99 writes "Last November Matt Brittin, Google's European chief gave a pretty convincing account of himself as he tried to explain why Google wasn't paying more tax in the UK. All the sales staff were based in Ireland apparently and the UK-based staff were there just to promote the platform for advertisers. Great. Nothing to see here. Move on please. Well, actually there is a little more to the story, as an investigation by Reuters has discovered. There are many sales staff in the UK with titles and responsibilities curiously close to what most people would call sales staff and as a result Mr. Brittin will once again have to face Margaret Hodge and the PAC to explain just what is happening."

Comments

Googled it?

[M3.14]

I wonder if Reuters did use google to find it out.

I interviewed for Google in Ireland

[Anonymous Coward]

I did a couple of interviews for Google in Ireland, yet all my interviewing was through the UK... 0.o

Why explain himself?

[cerberusss]

Why does this guy get to explain himself? In my country, the IRS just sends me a letter about me misbehaving, and says I've got 30 days to pony up the cash.

Why the flying duck does a company then gets to make apologies, when it's obvious by now that they're cheating?

Re:Why explain himself?

[beelsebob]

"Explain himself" is british english for "to face a bollocking".

Re:Why explain himself?

[Captain Hook]

Why does this guy get to explain himself? In my country, the IRS just sends me a letter...

This isn't the HMRC, this is a special parlimentary committee who are trying to work out how the companies are legally avoiding tax.

The companies questioned (Google, Amazon, Starbucks + 1 other I can't remember off the top of my head - probably MS) were all choosen because they pay very little tax in relation to the turnover the companies are reporting in the UK, and are therefore either very badly run or are engaged in some very effective tax avoidance.

Some of the answers given by the executives were extremely funny, the Amazon executive especially didn't perform well, but Google actually came out of it looking reasonably good, they seemed to be quite honest saying they based most of their operations in Ireland because of it's lower Corporation Tax level and that it wasn't hiding anything while Amazon twisted and turned trying not to say the exact same thing about it's luxembourg HQ.

The Google executive is being brought back because it's now been shown that most of the Google operations are based in London, not Dublin and he was therefore telling porkies.

He's not being brought back in to explain his tax affairs, he's being brought back for lying to a government committee.

Re:Why explain himself?

[beelsebob]

Actually, if sales staff are based in the UK, then sales are being made in the UK, and profits are being made in the UK, so tax is being miss paid. That's the issue.

Re:Why explain himself?

[IamTheRealMike]

That's not how the law is written. The money that is being charged for the ads are paid to the Irish subsidiary. Therefore Irish taxes apply. There's no legal definition for what it means to "make a sale" in that regard and the location of the first person you talk to on the phone makes no difference. Otherwise if you call up a company and your purchase is handled by an Indian call center, is the sale suddenly taxable in India now even if you're a Brit and pay a British company? No, that's not how tax works.

If someone thought the law was actually being broken, then the right thing to do is for HMRC to prosecute. Not summon random executives to "explain themselves" to Parliament. That's a waste of time that is guaranteed to achieve nothing.

Re:Why explain himself?

[Anonymous Coward]

That's not how the law is written. The money that is being charged for the ads are paid to the Irish subsidiary. Therefore Irish taxes apply. There's no legal definition for what it means to "make a sale" in that regard and the location of the first person you talk to on the phone makes no difference. Otherwise if you call up a company and your purchase is handled by an Indian call center, is the sale suddenly taxable in India now even if you're a Brit and pay a British company? No, that's not how tax works.

If someone thought the law was actually being broken, then the right thing to do is for HMRC to prosecute. Not summon random executives to "explain themselves" to Parliament. That's a waste of time that is guaranteed to achieve nothing.

I thought the whole point was for the Parliament to understand what is happening, and use that to consider adjustments to tax laws to address some of the current weaknesses that allows extreme (but today legal) tax avoidance. That is not a matter for HMRC, that is what the Parliament should be doing.

Re:Why explain himself?

[BasilBrush]

A false smear from an AC, repeating the tax cheats excuses.

Margaret Hodge owns shares in Stemcor. Stemcor's effective tax rate over the last 5 years was 32%. Google's effective tax rate was 8%. Google's UK effective tax rate was 0.4%.

Re:Why explain himself?

[Xest]

These parliamentary committees exist to investigate issues in society. They have the option of summoning individuals or representatives of corporations to get to the bottom of those issues. If those individuals lie to them (as Google did in this case) then they have the right to recall them and question them hard about that.

Saying it's a waste of time and is guaranteed to achieve nothing is absurd, how the fuck do you think policy gets made if politicians aren't allowed to call in relevant people to explain how things work and to see if they can provide any justification for their position if they lie, or are perceived to be on the wrong side of public opinion?

The whole reason this committee has been pursuing these lines of questioning is to see whether the law needs to change precisely so HMRC can prosecute, but when companies like Google and Amazon come to the committee and either lie, or fail to answer simple questions, then it's not really surprising the committees push them a bit harder for justification is it? The point being that if even after all these chances, even after all this deep questioning they can't provide reasonable answers to questions such as "Why is your corporation tax payment so low, when you make so much profit here?" then yes, the law is going to change, and yes, if they persist after that, they will be prosecuted. The law can't change in an effective way however if MPs don't understand the problem in depth to make sure the changes work, and are relevant.

Re:Why explain himself?

[BasilBrush]

Stemcor trades steel. Big old fashioned, heavy to transport, unglamorous steel. In a country where British Steel made losses for decades. And 2011 was in the depths of a recession. Just how much profit do you think they should have made? It's admirable that they made any.

Note that the Telegraph article that you are probably referencing, directly or indirectly says: "However. it is not known whether the company â" which made profits of £65m â" used similar controversial tax avoidance measures criticised in the past by Mrs Hodge."

If it's "not known", and based purely on looking at revenue rather than profit, then it is indeed a smear.

Google on the other hand IS KNOWN to use tax avoidance, and we KNOW they made huge profits on which they paid very little tax, cheating people in countries all over the world.

Time to start taxing revenue instead?

[Lincolnshire Poacher]

Corporation Tax is, of course, only levied on the profits disclosed by the company's annual return. So only profitable companies have to pay 23% of their net as tax.

But this encourages the Big Boys to simply shift their profit to other, overseas, divisions, through 'franchise payments' and other mechanisms.

Perhaps it's time to say that any company making over 1 million in annual revenue will pay, say, 5% on its revenue above that level. No discussion of profits. It is much easier to determine how much money a company took-in. What money landed in its UK bank accounts is what is taxed.

Re:Time to start taxing revenue instead?

[tonywestonuk]

They already tax revenue. its called VAT, and for every £100 of takings, 16.6p is sent to the govenment.
 

Re:Time to start taxing revenue instead?

[91degrees]

Google is very tricky to deal with because they do operate essentially on the internet. They can genuinely operate anywhere in the world. they might need a few servers in or near the UK, but they can easily do most of the work from any other European country. Switzerland and Gibraltar both have very low taxes, and few barriers to business with the EU.

Not sure I agree this is the same with Amazon. Amazon do, at least, have to have warehousing in the UK. Claiming it's a foreign transaction when you pay in UK pounds, and have an item shipped from a UK warehouse to a UK address is a lot harder to justify.

Re:Time to start taxing revenue instead?

[iserlohn]

For an example is how prevalent this practice is, look at how Pepsico structure it's operations in the UK. They sells crisps (ie. potato chips) in the UK under the Walkers brand. There was an article no long ago in one of the major newspapers that described how they are able to effective transfer all the profits away from the UK part of the business to avoid paying tax. They did it by assigning all the potatoes that goes into the making of the crisps to be owned under the Swiss subsidiary. These are processed and made into crisps in the UK owned plants, which makes almost no profit in its operations. The finished product, still owned by the Swiss subsidiary is sold, and all the profits make are accounted for under the Swiss operation.

The problem with is that in the EU, we have the free movement of goods through economic union, but there is not overriding political union to plug the loop holes. This needs to be addressed somehow, or otherwise, we are just subsidising Switzerland, Luxembourg and Ireland through tax loopholes.

Re:Time to start taxing revenue instead?

[iserlohn]

Maybe because it violate the basic tenants fair play? There is a reason for tax and a large part of it is to pay for the upkeep of the physical *and* social infrastructure in a country. What you are advocating is that we should let differences between the tax regimes be taken care of solely by market forces, and by extension the rapid downsizing of the state in a race to the bottom.

I guess if you sold it *that* way, it doesn't look half as attractive does it?

Google's real motto

[Required Snark]

Pay No Taxes

VAT does not work like that.

[tuppe666]

We have a tax like that already - VAT

VAT does not work like that. VAT is paid by the Final Customer, The businesses in between don't pay. What you may be getting confused over is the HMRC *collect* the net of incoming VAT and outgoing VAT until it is finally paid in full by the final customer. Businesses essentially pay nothing.

There is a nice explanation and example at wikipedia http://en.wikipedia.org/wiki/Value_added_tax

Re:Books should be VAT free.

[FireFury03]

That is nothing to do with Amazon. In the UK books rightfully are vat free, but ebooks aren't.

Depends what you mean by "rightfully". The VAT laws are incredibly inconsistent and arbitrary in the UK.

VAT was originally _supposed_ to only apply to "luxury goods", which is why cakes (which are presumably a bare essential) are tax free whilst sanitary towels, incontenance pads, etc (which are clearly luxury items) are taxable.

Similarly, a flapjack (i.e. a bar made out of cerial, fat and sugar) is VAT free whilst a cerial bar (which is, instead, made out of cerial, fat and sugar) is taxable.

So as you can see, the VAT rules are completely clear, consistent and intuitive with no chance of ambuiguity or misinterpretation.

Re:Books should be VAT free.

[FireFury03]

VAT was originally _supposed_ to only apply to "luxury goods"

Oh, and I should add that keeping yourself from freezing to death and being able to get to work are also luxuries, as fuel has VAT charged on it. I'm not sure what happens if you decide to chuck VAT-free cakes on the fire and use them as fuel...

Re:It usually works like this

[rednip]

Most bad government has grown out of too much government. - Thomas Jefferson

Whenever I see a quote like that attributed to Thomas Jefferson, I always [use a popular internet search tool] to find more often than not that it's simple right wing fantasy. Why am I not surprised, that it's fake?.

Here are some more things to chew on:

• All of our founding fathers spent their entire lives as politicians both during the colonial era and after the revolution. The idea that they were somehow 'afraid of government' is ludicrous.
• The idea that revolution was 'a bunch of farmers with their personal guns' is ridiculous, it was funded by state governments (Continental Congress) and supported by the French crown.
• Thomas Jefferson didn't write the Constitution, nor the bill of rights, as he was minister to France that entire time, he wasn't even on the committees. Was he really even a 'Framer'? Also, for all his views, when given the chance as a President he governed with an expansive view of both executive and federal power.