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1 May 2013 By Quentin Webb

Google looks too clever on British tax. Quizzed by parliamentarians last year, the tech giant defended its low tax UK bills, saying deals are actually struck in lower-tax Ireland. Yet a Reuters investigation suggests London is actually a sales hub. Google distinguishes between UK staff who encourage sales and Irish employees who execute deals. That hairsplitting won’t impress politicians or newspapers. Rightly so.

Reuters says the company made $18 billion in UK revenue between 2006 and 2011. At the average profit margin and tax rate, that would have generated a tax bill of around $1 billion, but it actually paid less than 2 percent of that: $16 million.

An executive testified this mismatch was because nobody actually sold in Britain. Yet Reuters found customers, alumni, job adverts and 150-odd Linkedin profiles suggesting otherwise. Google says its evidence to the UK parliament was truthful and accurate in setting out how UK staff supported salespeople in Ireland.

If MPs reject the distinction between selling and sales support, Britain’s sleepy taxman could ultimately be prodded into seeking back payments and levying bigger future bills. France already reportedly wants 1.7 billion euros ($2.2 billion) of back taxes for similar reasons.

The sums could be material for a company which set aside $2.6 billion for tax last year. And the hoo-hah might encourage other countries to examine Google more closely. It is already in Australia’s sights.

Even a legally convincing rebuttal may not prevent reputational damage. Consumers might find boycotting Starbucks cafes easier than avoiding Google search, YouTube, Chrome and Gmail. But image is important and after earlier upsets such as harvesting personal data while mapping cities, Google looks ever less like a cool upstart and more like a clumsy, capricious behemoth.

Eric Schmidt, Google’s chairman, boasted recently to Bloomberg that Google was “proudly capitalistic” and he defended routing money through low-tax Bermuda, Ireland and the Netherlands. Such comments are tin-eared.

With public and household finances creaking, patience is wearing thin with elaborate cross-border tax deals. Ask Starbucks, British comedian Jimmy Carr or many holders of formerly secret Swiss bank account. The UK, Germany and Australia are already pushing the G20 for tighter tax rules fit for the internet age.

At flotation, Google’s mantra was “don’t be evil”. For tax in 2013, “don’t be underhand” might be better.

 

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