Despite £3bn in sales from UK customers, Google pumps the money where it won’t get taxed
Google paid £35m in UK taxes in 2012, including £11.6m in corporation tax, on revenues of £506m, according to accounts filed with Companies House.
Those figures contrast sharply to the company’s $4.9bn (£3bn) in 2012 sales to British customers, a disparity which has led Google representatives to be grilled before a parliamentary committee twice in the past year over its tax practices.
Google declared a pre-tax UK profit of £36.8m for 2012, up from a pre-tax loss of £20.7m the year previously on a UK turnover of £395.8m. Google paid £7.3m in corporation tax in 2011. The company’s 2012 charge was accompanied by an additional £24m provision for taxes on shares awarded to employees from 2005 to 2011, resulting from new HMRC tax rules.
The company’s relatively small UK tax footprint is the result of a company structure which designates the British office as a marketing operation selling services to Google’s European headquarters in Ireland. The company’s British turnover is primarily a marketing service fee paid by the Irish operation, as well as a research and development fee of £109m from the US.
Google earns “substantially all” of its non-US profits in Ireland, according to the company’s annual report. However, Ireland taxes only a small proportion of these profits, because the Irish operation in turn pays royalties to a Bermuda-based holding company which holds Google’s non-US intellectual property.
The 2012 revenues of Google’s Irish operation increased by almost one-quarter year-on-year to 15.5bn euros (£13bn). The operation paid almost 11bn euros in “administrative expenses”, including royalties to Bermuda, resulting in a 2012 Irish tax bill of 17m euros, up from 8.1m euros for 2011.
Overall, Google paid a tax rate of 2.6 percent on its $8.1bn in non-US income in 2012, according to Google’s accounts.
Google and other large technology companies have recently come under scrutiny for their tax structures, which the companies say are standard practice for multinational corporations, conforming to the tax laws that are currently in place.
Google’s Northern European chief Matt Brittin appeared before the parliamentary Public Accounts Committee (PAC) in November of 2012 and again in May. Later in May, a former Google employee told the Sunday Times that Google’s London employees had for years negotiated and signed contracts with British customers, with cash being paid into a British bank account, before these were booked through the Irish office.
A report by the PAC in June accused the search engine giant of ‘aggressive’ tax avoidance aimed at paying very little UK corporation tax.
Google on Monday again defended its tax structure, pointing out that aside from its tax contribution the company has also created 2,000 jobs in the UK and invested more than £300m in UK property, including a new London headquarters in Kings Cross.
“Like most multinationals we pay the bulk of our £1.2bn corporate tax bill where our business originated, in our case the US,” Google said in a statement. “That’s a rate of more than 19 percent, roughly what a UK-based company would pay.”
In April Google chairman Eric Schmidt defended the company’s tax practices, telling the BBC that all multinational companies conduct their tax affairs in the same way. “The same is true for British firms operating in the US, for example,” he said.
Are you a Google expert? Take our quiz!