Google dodges taxes in UK

Uses Ireland base to avoid billions of pounds of corporate tax; Lawmakers to grill Google

In November 2012, Google’s vice-president for northern and central Europe was called to an oak-paneled conference room overlooking the Thames to testify to a parliamentary committee of the United Kingdom about how firms like his reap billions in revenue in Britain but pay very little corporate income tax.

Mr Matt Brittin, dressed in a fitted blue suit and open-necked white shirt, smiled confidently as he explained that Google Inc. wasn’t liable for taxation on UK sales because these were all handled from its European headquarters in Dublin, Ireland. “Nobody (in the UK) is selling,” Brittin told the Public Accounts Committee (PAC).

That’s not how Simon Andrews, founder of advertising agency Addictive, has experienced Google UK. “All the people you tend to deal with are in London,” said Andrews, whose business plans and buys advertising campaigns on behalf of clients. “You would never know about the Dublin thing apart from if you looked closely at the address on the invoices. All the people are based in London.”

The difference is important. For tax purposes, Google, which is headquartered in Mountain View, California, says it does not have a British presence. From 2006 to 2011, Google generated $18 billion in revenues from the UK, according to statutory filings, and paid just $16 million in taxes. If the UK tax authority were to decide that UK-based employees do sell to British clients, UK law could consider Google to have a tax residence, lawyers say.

Google UK employed 1,300 people by 2011, of whom 720 were engaged in “the provision of marketing services” to Google Ireland, according to its accounts. Google’s chairman Eric Schmidt defended the search giant’s low tax bills in the UK last month, saying the company’s arrangements are within the law.

A Reuters examination of Google’s activities in Britain shows many roles that actually target, negotiate and close sales of Google’s advertising products to its customers. Research included interviews with more than a dozen customers and former staff, job advertisements, CVs and endorsements on networking website LinkedIn.

There may be a fine line between marketing and sales, but the idea that Google does not sell in Britain raised a chuckle from Andrew Johnson, a manager at digital marketing agency Stickyeyes who is based in the northern city of Leeds. His company, which has annual turnover of around £15 million ($23 million), buys a range of services from Google and he has had meetings with account managers in London. “I suppose it goes back to the famous quote that we’re all sales people ultimately because we’re all trying to sell something,” he said. “But they do lots of sales pitches. That’s how we view them. They view them as new product pitches, we call them sales pitches.”

On its corporate website, Google UK says London is home base to “a number of EMEA sales & marketing leaders”, adding, “Most offices outside Mountain View focus on engineering or sales; we do both.”

In late March and early April, the website advertised dozens of Londonbased sales jobs, whose responsibilities included “negotiating deals”, closing “strategic and revenue deals” and achieving “quarterly sales quotas.”

Google customers also endorse its London-based sales staff on LinkedIn, at least six profiles show.

Lawyers and academics say that if Google’s UK staff did agree sales with UK customers, that could open the possibility of much bigger tax bills. The tax authority in France has already challenged a similar structure that the company used in relation to its French subsidiary. But questions of tax often sit in a legal grey area, where a country’s tax authority and the courts ultimately decide.

Google’s director for external relations Peter Barron said if UK customers want to buy advertising from Google, the company’s UK marketing staff would encourage them to do so; but staff in Ireland sold to UK clients.

Ms Margaret Hodge, chairwoman of the Public Accounts Committee, which heard Brittin speak in November, said the fact Google told parliament it does not sell in the UK while advertising Londonbased jobs for salespeople is a “very serious” matter.

She said she plans to recall Brittin to appear before her committee.

Google makes almost all its money from internet advertising. Mr Brittin told PAC that Google declares hardly any taxable profit in the UK because all its profits are derived from the computer codes developed in California.

The UK unit’s accounts show it doesn’t receive revenue from sales, but fees from Google Ireland and Google Inc., which are supposed to cover costs and include a small premium.

Google Ireland Ltd. reported sales of 12.5 billion euros ($16.4 billion) in 2011, but profits of only 24 million euros, and an Irish corporation tax bill of eight million euros. The low profit comes from the fact it pays most of its turnover to an affiliate in Bermuda, which levies no income tax on foreign-controlled corporations, for the right to use the computer algorithms.

“I am very proud of Google’s corporate structure. It’s called capitalism,” Google chairman Schmidt told Bloomberg News in December.

“We are proudly capitalistic. I’m not confused about this,” Mr Schmidt said. — Reuters