LONDON (Reuters) - A panel of British lawmakers criticized a back-tax deal between Google and UK tax authorities on Wednesday, calling it “disproportionately small” and branding the company’s explanation of its tax planning as disingenuous.
The Public Accounts Committee, which scrutinizes public spending, also criticized the tax authority, saying it appeared “to have settled for less corporation tax from Google than other countries are willing to accept”.
It was “not possible to judge whether a 130 million-pound ($180 million) tax settlement agreed between Google and HMRC is fair to taxpayers,” the Committee said in its report, adding that more transparency was needed in corporate tax affairs.
Google, now a unit of holding group Alphabet Inc, said it followed all tax rules. “After a six-year audit by the tax authority we are paying the amount of tax that HMRC agrees we should pay,” a spokesman said.
The tax authority, Her Majesty’s Revenue and Customs (HMRC) said it “does not settle for a penny less than is due under the law from multinationals”.
The internet search giant prompted a political storm last month when it announced the settlement, which was hailed by British finance minister George Osborne as a “great success”.
The opposition Labour Party described it as derisory and said it showed the government’s failure to act against corporate tax avoidance, a hot topic for austerity-weary Britons.
The committee questioned Google’s argument that it merely followed tax laws passed by politicians.
“This is disingenuous. There is nothing in the rules that says you must set up two companies in Ireland and send large royalty payments, via the Netherlands, to a company that is tax resident in Bermuda,” the report said.
Google generated around 24 billion pounds of revenue in Britain between 2005 and 2015 — the period covered by the settlement.
But the back tax deal brought its total tax bill for the period to less than 180 million pounds.
“The sum paid by Google seems disproportionately small when compared with the size of Google’s business in the UK,” the committee said.
The Committee said reports that tax authorities in France and Italy were seeking much larger sums from Google, raised questions about whether HMRC was being too soft on big companies like Google.
Google enjoyed profit margins of around 30 percent over the past decade, suggesting its UK sales generated profits of around 7 billion pounds between 2005 and 2015.
However, Google’s tax bill for the period implies that it was deemed to have taxable UK profits of just 600 million pounds, according to Reuters calculations based on prevailing tax rates.
Google says it reports relatively little profit in the UK because most of its earnings are derived from intellectual property like computer codes developed overseas, rather than the sales staff, administrators and programmers based in the UK.
HMRC told the committee earlier this month that the tax bill reflected “the full value of the economic activities carried on by Google in the UK” and that the fact most of the profits from Google’s UK sales ended up in Bermuda didn’t influence its calculations.
Other tax authorities can take a tougher approach. A decade ago, the U.S. Internal Revenue Service (IRS) demanded billions of dollars in back taxes from British drugmaker GlaxoSmithKline (GSK).
The IRS rejected GSK’s argument that almost all the profits derived from selling a drug in the United States related to the drug formula, which was owned in the UK. Rather, the IRS argued, over half the profits should be attributed to the marketing efforts of the U.S. operation, which made the drug a commercial success.
By comparison, the HMRC settlement means Google has reported around 8.5 percent of the profits derived from UK sales, in Britain, according to Reuters calculations.
($1 = 0.7193 pounds)
Additional reporting by Noor Zainab Hussain in Bengaluru; Editing by Alexander Smith and Keith Weir