UK, Australia chase Google for more tax

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UK, Australia chase Google for more tax

Questions over role of staff.

Pressure is mounting on search giant Google over the means by which it calculates and pays company tax across several Commonwealth countries.

Legislators have taken issue with Google's efforts to greatly minimise the tax it pays on revenues earned from customers in Britain, New Zealand and Australia by claiming it does not serve customers with paid search services from within those jurisdictions.


The search giant's latest financial statements show that it tabled a profit of $22.4 million for Australian operations in the year ended December 31 2012, and as a result, paid only $6.1 million in tax, the AFR reports.

However, these accounts don't include $1 to $1.5 billion in search advertising revenue routed to Google's Irish subsidiary that in turn pays royalties to a Dutch company. The money then goes to Bermuda which has no corporate income tax.

The practice is legal and saved Google US$2 billion in tax for 2011 as it routed US$10 billion to Bermuda that year, Bloomberg reported.

British regulators have moved to investigate the practice.

Executives from Google and its auditor Ernst & Young are scheduled to again be called to a British parliament committee to testify on tax, after a Reuters investigation highlighted inconsistencies in the way Google portrays its activities in Britain.

Margaret Hodge, head of the Public Accounts Committee (PAC), which is tasked with ensuring value in government financial affairs, said she would summon the companies' representatives to explain previous comments to the committee in light of the news report.

The Reuters investigation found that while Google executive Matt Brittin claimed the company does not make sales to UK customers from the UK, staff and customers think otherwise.

Lawyers and academics say that if UK staff did sell to UK customers, that could have implications for Google's tax status in Britain, opening the possibility of much bigger tax bills. Google labelled the Reuters story as misleading.

Brittin, Google's Vice President for Northern and Central Europe, told the PAC in November that "Nobody (in the UK) is selling."

He said Google employs "a couple of hundred" staff at its European headquarters in Dublin who are responsible for selling to UK clients. The people "on the ground (in the UK) are helping people make the most of the web," he said, "and the people in Ireland are helping to operate the systems and sell advertising to the businesses that want to work with us."

Google's own corporate website claims sales teams are based in London, and advertises jobs for London-based sales staff, whose duties include "negotiating deals", closing "strategic and revenue deals" and achieving "quarterly sales quotas".

Interviews with more than a dozen customers and former staff, and an examination of job advertisements, CVs and endorsements on networking website LinkedIn show many roles that go further than marketing, to actually target, negotiate and close sales of Google's advertising products.

"All the people you tend to deal with are in London," said Simon Andrews, founder of advertising agency Addictive, 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 profiles of around 150 London-based employees on the LinkedIn networking website said they were involved in formulating sales strategy, managing sales teams, closing deals or other sales work.

Google's Director for External Relations Peter Barron said Brittin denied firmly that he had misled the Committee and the company stood by his comments that no selling was being conducted in Britain. He declined to say whether UK staff did negotiate or close deals but said all sales to UK clients were transacted with Google Ireland. "We comply with all the tax rules in the UK," he said.

Advertisements for UK staff sometimes refer to sales skills because "we are seeking to attract people with those skills and that background", he added. "We accept that the wording of some job adverts may have been confusing, and we are working to make it clearer."

Barron added there was limited room for price negotiation on some Google products. Prices for advertising sold via Google's AdWords system were dictated by online auction and rates for advertising on the Display Network and on YouTube are set by reference to pre-determined pricing grids and discounts, and there is no negotiating beyond these parameters.

He still declined to say how the negotiation of contracts worked in practice.

"We will need to very quickly call back the Google executives to give them a chance to explain themselves and to ensure that actually what they told us first time around is not being economical with the truth," Hodge told Reuters.

Stephen Barclay, a Conservative member of parliament who sits on the PAC, said he supported Hodge's decision to recall Google and he was keen to establish whether the work conducted by its UK business tipped over the line of what was allowed without creating a taxable presence in the UK.

"There is a case for having recall hearings, to further clarify some of the questions that are still outstanding," he said.

Fiona Mactaggart, a Labour member of the committee, said the burden of proving that Google UK staff do not sell in Britain now rests with Google. Nick Smith, another Labour member of the committee, said he was also going to write to the head of the tax authority about the matter.

GOOG Data and chart source Wikinvest

Accountants be accountable

In January, representatives of the 'big four' accountants - Ernst & Young, PricewaterhouseCoopers, Deloitte and KPMG - also testified to a UK Public Affairs Committee investigation into their role in helping big companies arrange corporate structures to minimise taxes.

At the time, Hodge asked John Dixon, Head of Tax Policy at Ernst & Young, whether his staff walked around the offices of their clients to check they were conducting the activities in their UK offices that they described in statutory accounts and in statements to the tax authority. Dixon said they did.

Hodge said the statements on Google's website about its UK activities, its job advertisements and LinkedIn profiles all raised questions about whether Ernst & Young's staff had been as diligent as Dixon claimed.

"The evidence they gave was clear and unambiguous ... Ernst & Young have questions to answer about whether they were being wholly open with us as a committee," she said.

Ernst & Young declined to comment on Google, citing client confidentiality, but said it stood by Dixon's comments.

"Ernst & Young conducts audits in accordance with International Standards on Auditing," spokeswoman Sarah Jurado said, adding that this included the standard that "requires us to obtain an understanding of the entity and the environment in which the entity operates".

Double Irish Dutch Sandwich used downunder

Google and Facebook have come under fire across the Tasman too, after reports of very low tax payments from both despite substantial amounts of users and revenue.

The search engine giant paid two and a half per cent in tax for the 2011 year, 3News reports.

Despite having 2.2 million users in New Zealand, Facebook paid just NZ$14,497 (A$11,991) in tax for that same year and NZ$5,238 (4,330), figures that NZ's opposition Labour party slammed as "barely believable".

Unlike Australia and the UK however, the Kiwis appear to have thrown in the towel when it comes to making corporations pay their fair share of tax.

An Inland Revenue Department report sighted by Fairfax says the tax office is powerless to crack down on the multinationals' tax avoidance, even if it means allowing such practices put domestic companies at a severe disadvantage.

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