MPs publish report on Google's tax avoidance

13 June 2013

The Public Accounts Committee published its 9th Report of this Session which, on the basis of evidence from Matt Brittin of Google and John Dixon of Ernst & Young, and from HM Revenue and Customs, examined tax avoidance by large companies

The Rt Hon Margaret Hodge MP, Chair of the Committee of Public Accounts, today said:

“Google generates enormous profits in the UK. But despite an $18 billion turnover between 2006 and 2011 it paid the equivalent of just $16 million in taxes to the UK government.

“Google brazenly argued before this committee that its tax arrangements in the UK are defensible and lawful. It claimed that its advertising sales take place in Ireland, not in the UK.

“This argument is deeply unconvincing and has been undermined by information from whistleblowers, including ex-employees of Google, who told us that UK based staff are engaged in selling. The staff in Ireland simply process the bills. Google also conceded at this second hearing that its engineers in the UK are contributing to product development.

“The company’s highly contrived tax arrangement has no purpose other than to enable the company to avoid UK corporation tax.

“Google’s reputation has been damaged by these revelations of aggressive tax avoidance. That damage will not be repaired until the company arranges to pay its fair share of tax in the country where it earns the profits from the business it conducts.

“Confidence in HMRC has also been weakened. It is extraordinary that the department did not challenge Google over the complete mismatch between the company’s supposed structure and the substance of its activities.

“This is not specially to single out Google or indeed Starbucks and Amazon who had previously given evidence to us. The tax avoidance activities of these multinational companies are illustrative of a much wider problem.

“The Government clearly needs to act to strengthen HMRC and to simplify the tax code so that there are fewer loopholes. The Government should also consider greater transparency so that the public knows whether companies are paying a fair share. It should toughen up its proposals on public procurement to deny contracts to aggressive tax avoiders.

“The Government has declared that it will use its presidency of the G8 to promote the tackling of aggressive tax avoidance. This is a welcome recognition of the need for multilateral action to thwart the tax dodgers.

“This committee has vigorously condemned the activities of the big UK accountancy firms in helping their clients find loopholes in legislation and establish highly artificial tax structures.  These firms must recognize that the public mood on tax avoidance has changed and that the time has come for them to advise their clients responsibly.”

Margaret Hodge was speaking as the Committee published its 9th Report of this Session.


To avoid UK corporation tax, Google relies on the deeply unconvincing argument that its sales to UK clients take place in Ireland, despite clear evidence that the vast majority of sales activity takes place in the UK. The big accountancy firms sell tax advice which promotes artificial tax structures, such as that used by Google and other multinationals, which serve to avoid UK taxes rather than to reflect the substance of the way business is actually conducted. HM Revenue & Customs (HMRC) is hampered by the complexity of existing laws, which leave so much scope for aggressive exploitation of loopholes, but it has not been sufficiently challenging of the manifestly artificial tax arrangements of multinationals.  HM Treasury needs to take a leading role in driving international action to update tax laws and combat tax avoidance.

Conclusions and recommendations

1. The UK is a key market for Google but the enormous profit derived is out of reach of the UK’s tax system. Google generated US $18 billion revenue from the UK between 2006 and 2011. Information on the UK profits derived from this revenue is not available but the company paid the equivalent of just US $16 million of UK corporation taxes in the same period. Google defends its tax position by claiming that its sales of advertising space to UK clients take place in Ireland—an argument which we find deeply unconvincing on the basis of evidence that, despite sales being billed from Ireland, most sales revenue is generated by staff in the UK.  It is quite clear to us that sales to UK clients are the primary purpose, responsibility and result of its UK operation, and that the processing of sales through Google Ireland has no purpose other than to avoid UK corporation tax. This elaborate corporate construct has damaged Google’s reputation in the UK and undermined confidence in the effectiveness of HMRC.

Recommendation: Public confidence in Google will only be restored when it establishes a corporate structure that ensures Google pays tax where it generates profit. This should be addressed as a matter of urgency by Google and other companies with a similar corporate structure—the Committee will continue to pursue this issue over the course of the Parliament.

2. HMRC has not been sufficiently challenging of multinationals’ manifestly artificial tax structures. We accept that HMRC is limited by resources but it is extraordinary that it has not been more challenging of Google’s corporate arrangements given the overwhelming disparity between where profit is generated and where tax is paid. Inconsistencies between the form of the company’s structure and the substance of its activities only came to light through the efforts of investigative journalists and whistleblowers.  Any common sense reading of HMRC’s own guidance and tests suggests HMRC should vigorously question Google’s claim that it is acting lawfully. In contrast to evidence given to us previously, Google has also conceded that its engineers in the UK are contributing to product development and creating economic value in the UK We note that HMRC has never challenged an internet-based company in the Courts on the question of its permanent establishment.

Recommendation: HMRC needs to be much more effective in challenging the artificial corporate structures created by multinationals with no other purpose than to avoid tax. HMRC should now fully investigate Google in the light of the evidence provided by whistleblowers.

3. International tax rules are complicated and have not kept pace with the way businesses operate globally and through the internet. While we are concerned about HMRC’s effectiveness in tackling tax avoidance, we also acknowledge that it has to operate within the constraints of complicated UK tax laws and international tax treaties.  As we have reported before, it is far too easy for companies to exploit the rules and set up structures in low-tax jurisdictions, rather than pay tax where they actually conduct their business and sell their goods and services. We are also particularly concerned about the out-of-date tax frameworks covering international internet based commerce which rely on a fully automated process. We expect the UK government to take a leading role in modernising international tax law and welcome the government’s emphasis on tackling aggressive tax avoidance under the UK’s presidency of the G8.

Recommendation: HMRC and HM Treasury should push for an international commitment to improve tax transparency, including by developing specific proposals to improve the quality and credibility of public information about companies’ tax affairs, and use that to information to collect a fair share of tax from profits generated in each country. This data should include full information from companies’ based in tax havens.

4. The reputation of the big accountancy firms in the UK has suffered from their substantial role in advising their clients on corporate structures and tax planning which serve only to help them avoid UK taxes. In becoming more involved in constructing complex tax arrangements for their clients, the big accountancy firms are increasingly seen as being part of the problem of corporate tax avoidance, rather than the solution.  In providing tax advice and reaching audit judgements on their clients’ UK operations and structures, the big accountancy firms need to focus on the substance of the enterprise, rather than on artificial structures which serve only to avoid tax. The worldwide concerns about artificial tax arrangements will not go away and the big accountancy firms have the opportunity to play a leading role in promoting and enabling transparency in their clients’ tax structures and payments.

Recommendations: We expect the big accountancy firms to recognise that the public mood on tax avoidance has changed. They should provide responsible advice to ensure that corporate arrangements reflect the substance of transactions and operations in the UK and enable their clients to be more transparent about where they make profits and pay tax.

The professional bodies of the accountancy profession should emphasise the importance to accountancy firms of behaving responsibly in selling tax advice to clients, and in reaching audit judgements on the substance of their clients’ UK operations and structures.

Further information

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