Paolo Soro

OECD policy effects on Google

Google has agreed to pay £130mln in back taxes after an "open audit" of its accounts by the UK tax authorities, as reported by

According to BBC, a payment covering the period 2005/2015 by Google is the subject concerning the deal with HMRC (Her Majesty's Revenue and Customs), the department of the UK Government responsible for the collection of taxes, the payment of some forms of state support, and the administration of other regulatory regimes including the national minimum wage.

As it is known, Google is one of several multinational companies to have been accused of avoiding tax, despite billions of pounds of sales the company makes in Britain every year.

Matt Brittin, head of Google Europe, said:

"The rules are changing internationally and the UK government is taking the lead in applying those rules so we'll be changing what we are doing here. We want to ensure that we pay the right amount of tax."

The company has been criticised for its complex international tax structures: its European headquarters are in Ireland, which there is a lower corporate tax base than in the UK (and, in general, in the EU); however, Google makes almost all its revenues in Britain.

Furthermore, it has also used company structures in Bermuda – where the corporation tax rate is zero – to shelter profits.

Apparently, such moves are legal, and Google (along with other US companies such as Facebook, Amazon and Starbucks) says it has abided by international tax rules.

Nevertheless, Margaret Hodge, the Labour MP and former chairwoman of the Parliamentary Public Accounts Committee, described its tax structures as "devious, calculated and unethical".

Now, the firm has agreed to change its accounting system so that a higher proportion of sales activity is registered in Britain rather than in Ireland.

Matt Brittin denied this payment is due to the fact that Google had been avoiding paying tax in the past:

"We were applying the rules as they were and that was then and now we are going to be applying the new rules, which means we will be paying more tax. I think there was concern that international companies were paying only in respect of profits that they make and those were the rules and the pressure was to see us pay in respect of the sales we make to UK customers – and the same for other companies. So, we are making a change because we want to continue to comply with the rules and the rules are changing."

However, these statements seem to be contradictory and inconsistent: whether Google had paid correct taxes in the past, it would not have to pay other amounts referring to those years, today.

The counterparty – HMRC spokesman – said:

"The successful conclusion of HMRC enquiries has secured a substantial result, which means that Google will pay the full tax due in law on profits that belong in the UK. Multinational companies must pay the tax that is due and we do not accept less. HMRC enforces tax rules regardless of the size of the company.”

Global tax rules have been tightened over the last year, with the OECD (Organisation for Economic Cooperation and Development), which produces guidance on world tax agreements, saying that multinational companies should not deliberately move profits to different countries to avoid tax.

Mr Brittin said:

"If we were British, we would make most of our profits in the UK and we'd be paying a lot more tax in the UK. The facts are we are an American company and that is where we pay the majority of our taxes, that is where we make the majority of our profits.”

We regret to consider that it is impossible to agree with this statement too.

Firstly, it is irrelevant what is the country where Google was initially set up, or where it pays the majority of its taxes; a multinational company works in more than one country, and it has to pay tax in each country pursuant its profits made there.

Secondly, the world wide principle of taxation in force in the US is quite different from the tax rules in the UK (and in Europe). 

To sum up, we can say the OECD policy (related to the new guidance document), eventually starts to show its effects: the British example demonstrates that, probably, nowadays, it is actually possible to counteract – at least partially – tax base erosion regularly perpetrated in Europe by large multinational companies.

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