Google and HMRC Face Public Accounts Committee

Today (Thursday 11 February) the Public Accounts Committee (PAC) starts its enquiry into HMRC and its handling of Google’s tax affairs.

Last month, the California-based tech giant announced a deal with HMRC to repay £130 million worth of back taxes stretching back over a decade. However, the deal was lambasted as “derisory and insulting”.

The amount equates to an annual rate of corporation tax of just 2.77% over the last 10 years, rather than the standard 20% paid by millions of other British businesses, according to Public Finance.

In response, on Tuesday HMRC published a factsheet detailing how they ensure multinational corporates comply with UK tax laws.

In a report published back in 2012, the PAC stated that big corporations were “able to exploit national and international tax structures” minimising the tax paid on activities in the UK. It also claimed that HMRC was not doing enough to tackle these tax avoidance tactics.

In the particular case of Google, HMRC has heavily rebuked the claims, stating that they have in fact “taxed all of Google’s profits chargeable to tax in the UK for the period in question, at the full statutory rate of tax.”

Answering questions on behalf of HMRC at the hearing will be CEO Dame Lin Homer, Director General of Business Tax Jim Harra and Tax Assurance Commissioner Edward Troup. Representing Google will be Vice President of Google Inc. Tom Hutchinson and Matt Brittin, President of Google EMEA.

HMRC’s recently published factsheet sets out to dispel myths about how it ensures compliance amongst big multinationals such as Google. It states that since April 2010 it has secured more than £100 billion of compliance revenues – £38 billion of this coming from large business compliance work. It also claims that it has reduced the corporation tax ‘gap’ (tax due, but not paid) from 9.3% in 2010 / 11 to 6.7% in 2013 /1 4.

The report goes on to detail the ways in which the government has helped HMRC tackle tax discrepancies, including new powers of enforcement and new legislation set out to combat tax avoidance.

The factsheet also outlines strategy for dealing with multinational corporations and ensuring they comply with tax regulations:

The largest companies often pose big tax risks, which is why we closely manage their compliance.

HMRC Factsheet, February 2016

Because of the revenues involved and tax at stake, HMRC commits heavily to investigating these large companies and claims that at any one time, it has around two-thirds of the UK's 800 largest companies under investigation. It details its approach for tackling tax avoiders, saying that it normally agrees with the business a settlement where all the tax, interest and penalties owed are paid, without having to take the matter to a tribunal. HMRC’s litigation and settlement strategy is available here.

No ‘Sweetheart Deal’ for Google

The report concludes with a section dispelling common myths about how HMRC deals with multinationals. Of particular relevance to the Google case is the understanding that HMRC has settled ‘Sweetheart Deals’ in the past, whereby large companies escape with paying less tax than is due.

Many commentators have argued that this was the case with Google, but HMRC rebukes these claims, stating that “it does not do Sweetheart Deals”.

It reveals that the National Audit Office (NAO) has full access to all of its papers. In fact, in 2012, the NAO conducted an investigation into HMRC’s settlements and concluded that it had obtained “good settlements for the country in all cases”.

It goes on to say that HMRC’s practices come under routine scrutiny by the NAO. It concludes by debunking the claim that the £130 million settlement with Google represents an effective tax rate of 2.7%, explaining that Corporation Tax applies to profits created from economic activities carried on in the UK, not to profits from sales to customers in the UK.

The full factsheet can viewed in detail here.