U.K. should probe Google's tax affairs: report

June 13, 2013: 10:40 AM ET
matt brittin google
Google's U.K. and Ireland chief Matt Brittin has been grilled twice by U.K. lawmakers. He denies misleading parliament over the company's tax affairs.
LONDON (CNNMoney)

The U.K. should launch a full investigation into Google to ensure it is complying with tax law, a committee of lawmakers said Thursday.

The country's Public Accounts Committee released a report focusing on Google's corporate taxes. It said whistleblowers had revealed inconsistencies in the technology company's corporate structure, which raised serious questions about whether it is acting lawfully on how it pays taxes in the country.

The committee said Google (GOOG) generated $18 billion in revenue from the U.K. between 2006 and 2011 but paid a paltry $16 million in corporate tax over the same period.

Google's argument that most sales of advertising space to U.K. clients take place through a subsidiary in Ireland, and therefore are not liable for U.K. tax, was "deeply unconvincing," it said.

"It is quite clear to us that sales to U.K. clients are the primary purpose, responsibility and result of its U.K. operation, and that the processing of sales through Google Ireland has no purpose other than to avoid U.K. corporation tax," the report stated.

The committee said Google's U.K. employees were responsible for generating between 60% and 70% of revenue in the country, and that Google Ireland's role was simply to conduct automated billing.

Related: Europe's lost trillion in taxes

Governments and lawmakers in Europe are turning up the heat on multinationals for using aggressive tax avoidance schemes at a time when taxpayers are being squeezed by austerity measures.

Last month, the European Union agreed to share bank account data across all 27 member states in a bid to crack down on tax evasion and aggressive avoidance.

It also pledged to push for an international standard on automatic exchange of information between tax authorities and transparency about who owns and controls companies, an effort U.K. Prime Minister David Cameron will promote at a G-8 summit next week.

Related: Apple grilled about tax havens

Google, along with Amazon (AMZN) and Starbucks (SBUX), was first challenged over its tax affairs by the same committee last year.

The search engine giant has repeatedly denied breaking any U.K. tax 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," Google said in a statement.

"We welcome the call to make the current system simpler and more transparent."

U.K. tax authorities do not comment on individual cases. The government says it is working with Germany and France to spearhead efforts at the Organization for Economic Cooperation and Development to modernize international tax standards and will put the issue at the heart of the G8 meeting.

Accounting firm Baker Tilly said the OECD was the appropriate forum for crafting new tax standards that can cope with multinational structures in the digital economy. A proposal could be published later this month.

"With the prospect of concerted action by most of the world's largest economies... the scope for tax avoidance by multinationals may be greatly reduced," the firm noted.

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