Google should face formal tax investigation, say British MPs

It’s been a while now since the U.K. Parliament’s Public Accounts Committee started grilling Google(s goog) over its tax affairs. And what a show that’s been to watch: Google tried to pretend none of its innovation took place in the U.K., despite the fact that its London offices are crawling with hundreds of software engineers, and it claimed its U.K. sales activities took place out of Ireland, which also turned out to be nonsense.

The report on this lengthy interrogation is now out. And guess what: the committee is less than impressed with Google’s performance. Indeed, the language of the report could only constitute a more direct accusation of lying if, well, it used that word.

Here’s committee chair Margaret Hodge:

“Google generates enormous profits in the UK. But despite an $18 billion turnover between 2006 and 2011 it paid the equivalent of just $16 million in taxes to the UK government.

“Google brazenly argued before this committee that its tax arrangements in the UK are defensible and lawful. It claimed that its advertising sales take place in Ireland, not in the UK. This argument is deeply unconvincing and has been undermined by information from whistleblowers, including ex-employees of Google, who told us that UK based staff are engaged in selling.

“The staff in Ireland simply process the bills. Google also conceded at this second hearing that its engineers in the UK are contributing to product development. The company’s highly contrived tax arrangement has no purpose other than to enable the company to avoid UK corporation tax.”

Hodge went on to say Google wouldn’t be able to repair its reputation until it “arranges to pay its fair share of tax in the country where it earns the profits from the business it conducts.” Whether or not Google values its reputation over the money it saves remains to be seen.

The committee did also point out the flipside to all this, which is that the British tax authorities’ rules are over-complex and riddled with loopholes. However, it argued that Her Majesty’s Revenue & Customs (HMRC) should “now fully investigate Google in the light of the evidence provided by whistleblowers”, because it now looks like the company was not acting lawfully.

Who’d have thought there was something wrong with paying corporate tax at a rate of 0.09 percent?

Anyway, I’ve spoken to HMRC but it says it won’t discuss any individual or business’s tax affairs. So, even if it does open an investigation into Google, we won’t know until it comes out through Google’s U.S. filings.

And here’s what Google had to say in response to the report:

“As we’ve always said, Google complies with all the tax rules in the UK, and it is the politicians who make those rules. It’s clear from this report that the Public Accounts Committee wants to see international companies paying more tax where their customers are located, but that’s not how the rules operate today. We welcome the call to make the current system simpler and more transparent.”