Google's use of Irish headquarters to bill UK customers is 'contrived'
Public Accounts Committee to investigate if company is acting within the law
BRITAIN'S parliament described Google's use of its Irish headquarters to bill customers in the UK as "contrived" in a report released yesterday and called on the UK tax authorities to vigorously investigate whether the company was acting within the law.
The parliamentary investigation was prompted by reports, which showed the company employed staff in sales roles in London, even though it had told MPs in November its British staff were not selling to UK clients – an activity that could boost its tax bill substantially.
"The company's highly contrived tax arrangement has no purpose other than to enable the company to avoid UK corporation tax," said Margaret Hodge who is chairwoman of the Public Accounts Committee (PAC).
Corporate tax avoidance has become a hot political issue internationally as citizens suffering from austerity measures have grown tired of revelations about the shifting of profits by large companies.
Google said it complies with all British tax rules and that it was up to politicians to change the law if they were unhappy with the outcome.
From 2006 to 2011, Google generated $18bn in revenues from Britain, according to statutory filings, and paid $1m in taxes.
Its low tax bill is a result of channelling revenues through Ireland, from where most revenue is sent to Bermuda, without any income taxes being paid anywhere in the chain.
Former staff and customers told parliament that the London operation was a sales office that managed all the company's largest UK accounts.
Google executive Matt Brittin denied misleading parliament and insisted that no deals could be done without Dublin's approval. If the Irish approval amounted to rubber-stamping, however, the internet search giant could fall foul of international tax rules, which say a tax authority can interpret a sale to occur where an employee solicits deals and receives orders, even if they pass contracts to others to be finalised.
The power is outlined in the commentary to the model tax treaty drafted by the Organisation of Economic Co-operation and Development, a group of mainly rich nations, and used when countries reach agreements on double taxation.
The PAC also called a representative from Google's auditor, Ernst & Young, one of the 'Big Four' accounting firms that audit most multinational companies, to testify alongside Mr Brittin.
The report criticised the big accounting firms for helping clients avoid tax and said they should "provide responsible advice to ensure that corporate arrangements reflect the substance of transactions".
Ernst & Young denied it had promoted artificial schemes and said it supported greater transparency in the tax system.