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Google ‘undermined its own argument’ in defending tax arrangements, say MPs

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Google in the UK declined to comment on today's Commons public accounts committee report when approached by Tax Journal, but the company has defended its tax arrangements since the PAC hearing on 12 November. As Tax Journal reported last week Matt Brittin, Google’s vice president in Europe Northern and Central, told Channel 4 News that ‘the tax we pay is the right amount of tax as defined by the systems that are set up by politicians’.

The PAC noted that Google explained ‘that it minimised tax within the letter of the law and that low tax areas or tax havens influenced where it located its group companies’.

‘The vast majority of Google’s non-USA sales are billed in Ireland. Google makes money from business to business advertising, adverts which can be targeted to the UK website and to UK Google users,’ the PAC said.

‘In the UK, Google Ltd recorded revenues of £396m in 2011, from Google Ireland, but paid corporation tax of only £6m. Google Ireland paid for the services provided by the 1,300 staff in the UK. Google had approximately 700 staff who undertake marketing work in the UK as part of their activities, but only 200 of Google’s Irish staff of 3,000 were involved in marketing Google in the UK.’

The PAC report continued: ‘Google accepted that profits should be taxed in the jurisdictions where the economic activity generating those profits occurred but it asserted that its underlying economic activity arose from the innovative software technology underlying its Google search engine generated by the US company.

‘Google also confirmed that it had an entity based in Bermuda to protect its intellectual property.  We consider that the company undermined its own argument since it remits its non-USA profits (including from the UK) not to the USA but to Bermuda and therefore may be depriving the USA of legitimate tax revenue as well as the UK.’

Google told the PAC subsequently that there were ‘no outstanding issues’ with HMRC about Google UK’s accounts. ‘HMRC is currently carrying out a review of the tax returns filed by Google UK for 2005 to 2011 inclusive and Google told us this is standard practice and that it is co-operating fully with that review,’ the PAC added.