Google are to face questioning from the MPs in the Public Accounts Committee concerning an agreement with HMRC to pay £130m in back taxes.
HMRC’s investigation focused on the diversion of Google’s profits to Dublin, its European headquarters. Dublin have a lower corporation tax of 12.5%; however, Google’s profits are further diverted to Bermuda, which has a corporation tax of 0%. This is executed by using what is known as the ‘Double Irish’ and ‘Dutch sandwich’ accountancy method. Accordingly, when a company in Europe purchases an ad from Google, the money is sent to Google Ireland. However, earnings do not stay in the Dublin based company; money is diverted through the Netherlands because Ireland does not tax certain payments to companies in other EU states. Google then uses a Dutch holding company (a shell corporation) to benefit from generous Dutch tax laws to pass the majority of said monies to Bermuda. Google’s recipient entity in Bermuda, an ‘Irish’ holding company, is not subject to tax because Ireland has territorial taxation and does not levy taxes on income booked in Irish subsidiaries outside the state. These arrangements are currently legal, though the Double Irish is in the process of being phased out.
Under the new agreement, Google will now pay higher taxes based on revenues in the UK, in addition to the £130m in back taxes. According to the BBC, Matt Brittin, head of Google Europe, stated, “The rules are changing internationally and the UK government is taking the lead in applying those rules so we’ll be changing what we are doing here. We want to ensure that we pay the right amount of tax.” Chancellor Osborne noted the agreement as a major success and acts as a redress to the recent public anger. However, the committee appears to have reservations about the transparency of the agreement and the quality of the deal for the people of the United Kingdom. The Tax Justice Network has valued Google’s tax bill to be approximately £200m per year. It remains to be seen how Google will respond to the Committee’s questions.