BF2S Forums Google avoids £100m UK tax

GOOGLE, the internet giant with the motto “don’t be evil”, avoids paying more than £100m a year in UK tax despite pulling in annual revenues of more than £1.25 billion.

Even though the web search engine operates as Google UK Ltd in London, British firms which advertise with it pay their subscriptions to a subsidiary based in Ireland, where corporation tax is far lower than in the UK.

This structure, condemned this weekend as “unfair” and “unacceptable”, allowed Google legally to avoid paying £110m of UK tax in 2007, according to research by an expert on corporate tax avoidance.

Google’s massive advertising revenues have already been blamed for ravaging the finances of newspapers, broad-casters and other creative industries. It is in dispute with musicians and songwriters, including Abba’s Bjorn Ulvaeus, Jools Holland and the singer Alison Clarkson, known as Betty Boo, for the royalties it pays for videos on its YouTube site.

The internet giant has also sparked privacy concerns in Britain for its Street View service, which enables strangers to spy on people’s homes, zooming in on such details as the type of locks on the windows.

Google’s accounts show that the highly profitable search engine paid just £600,000 of UK corporation tax in 2007, despite generating revenues of more than £1.25 billion in this country. More than 90% of Google’s UK revenues are channelled through Ireland, where corporation tax is levied at 12.5%, compared with 28% in Britain.

Richard Murphy, the accountant who investigated Google’s UK, Irish and American accounts for The Sunday Times, also found: Google avoided a further €135m (now £119m) in tax from Ireland during 2007. The search engine’s Irish subsidiary is owned by one of two companies Google has set up in the tax haven of Bermuda. Several sets of Google’s UK accounts were filed late, with one set of accounts outstanding by more than five months.

Vince Cable, the deputy leader of the Liberal Democrats, said: “Google is another in a long line of companies who seems to think that paying British taxes should be optional.

“The reality is, the more tax that companies like Google avoid, the more the tax burden falls on the rest of the public. It is clear that while Labour and the Tories have been embracing Google as the paragon of a 21st-century company, it has been running away from the taxman.”

Austin Mitchell, the Labour MP who has campaigned against corporate tax avoidance, described diverting UK revenues through Ireland as “unfair”.

“You only have to look at the falling earnings of newspapers and television companies to see what damage Google is having,” he said. “To hear that Google is not producing any real content, while siphoning out all this money from the UK and then not paying tax is just not on.”

Google has been embraced by the Westminster political establishment. In a speech at Google’s Zeitgeist conference last year, Gordon Brown said: “Can I begin by congratulating Google, 10 years ago a research organisation, now a $180 billion company, an expert in social innovation . . . making great strides in putting services to the people of this country.”

David Cameron, the Conservative leader, has appointed Eric Schmidt, Google’s chief executive, to the Tories’ economic recovery committee. Steve Hilton, Cameron’s head of strategy, is married to Rachel Whetstone, a vice-president of the company. Google, which has become the first port of call for hundreds of millions of people seeking information online, declined to reveal details of its corporate structure, how much UK tax it pays or the purpose of the operations it has set up in Bermuda.

“Google complies fully with the tax requirements in all the countries in which we operate,” the company said. “In the UK and elsewhere we make a very substantial contribution to local and national taxation.”

Although Google’s avoidance of UK tax is legal, Murphy’s report suggests HM Revenue & Customs (HMRC) could challenge its tax planning.

“HMRC could say Google is operating a branch in the UK and tax it on its UK turnover here,” Murphy writes. “I think this is viable.”

Google has seven subsidiaries in the UK, including Google UK Ltd, which employs more than 500 people. In 2007, they were paid on average almost £100,000.

Murphy said yesterday: “Is it morally right that a company can hoover up £1.25 billion of revenues from the UK in a single year and pay back just £600,000 of tax?”