Google Defends U.K. Tax Settlement Before Lawmakers
February 11 2016 - 7:50AM
Dow Jones News
Executives for Alphabet Inc.'s Google business defended their
settlement with the U.K.'s tax authority before a panel of British
lawmakers Thursday, trying to stanch criticism of a deal that
critics say let the search giant off too lightly.
In testy exchanges with lawmakers, Tom Hutchinson, Google's vice
president of finance, said the deal reached with the U.K.'s tax
authority was the largest settlement the Internet giant has paid
outside the U.S. He was appearing before parliament's public
accounts committee, which is tasked with ensuring British taxpayers
get value for money from the government.
The deal, in which Google agreed to pay £ 130 million ($189
million) in back taxes and boost future tax payments, sparked
outcry in the U.K. among those who say the Mountain View, Calif.,
company should have paid more. The U.K. is Google's second-largest
market after the U.S., with $7.07 billion in revenue from U.K.
clients in 2015.
Mr. Hutchinson defended the company's tax arrangements, saying
they comply fully with U.K. laws.
"We are paying the right amount of taxes," Mr. Hutchinson
said.
Also at the hearing, Matt Brittin, head of operations for Google
in Europe, the Middle East and Africa, said the Internet giant's
U.K. tax payments accurately reflected the economic activity the
company carries out in Britain.
"We are paying tax at 20% on our activities in the U.K.," Mr.
Brittin said, referring to the U.K.'s corporate-tax rate.
Google's defense of its deal is part of a broader effort by big
multinational to set templates for how they should cope with a
coming shake-up of global tax rules. Governments, particularly in
Europe, are changing international tax treaties and laws to force
companies like Google to pay more in taxes. Companies are now
moving to alter their structures to comply with new rules -- but
ideally without causing too much of a dent to the bottom line.
Amazon.com Inc., for instance, restructured its European
operations last year to start collecting revenue directly in
countries where its clients make purchases, shifting its tax base
away from its European headquarters in Luxembourg to countries like
the U.K. and France. But it isn't yet clear how much more—if
anything—the thin-margin Amazon retail business will end up paying
the taxman.
Google is also currently facing audits in multiple countries
including Italy and France, which is asking for as much as €1
billion ($1.13 billion) in back taxes and penalties. France's
economy minister said last month that Google was in talks with
France to settle that deal, but it isn't clear if a deal is
near.
At issue is how much business Google actually conducts in
individual European countries. The company employs thousands of
people across Europe as engineers or as marketers. But the company
argues that clients in countries like the U.K. and France don't
actually close any advertising deals with Google employees in those
countries; instead, clients buy all their advertising from the
local units' Irish parent. Local units like those in the U.K. make
all their revenue in fees paid by Google parents in Ireland and the
U.S.
Such arrangements, while legal, have attracted public ire and
political criticism. Stewart Jackson, a member of Prime Minister
David Cameron's ruling Conservative Party who sits on the public
accounts committee, accused Google's executives Thursday of using
these and other corporate structures to limit the company's tax
bill.
"You've made a choice to avoid tax, and have set up structures
specifically so to do," Mr. Jackson said, a charge Google's
executives denied.
Lawmakers on the panel repeatedly underlined public anger at
Google's tax arrangements in frequently hostile questioning.
"Our constituents are very angry. They live in a different world
to the world you live in," Meg Hillier, the committee's chairwoman,
told Mr. Brittin.
Under Google's U.K. deal, the company has committed to boosting
what the company pays its U.K. unit by an unspecified percentage to
reflect revenue from U.K. clients. For the 18 month period ended
June 30, Google says that it is paying an additional £ 13.8 million
in tax because of the settlement, out of total corporate tax for
the period of £ 46.2 million, according to the company's most
recent U.K. company filing.
The Organization for Economic Cooperation and Development, a
group of rich countries, last fall issued a series of
recommendations aimed at stopping large companies in many
industries from using complex but legal structures to avoid paying
hundreds of billions of dollars in corporate income taxes every
year.
The European Union also proposed last month a common standard
intended to thwart tax avoidance schemes by multinationals. The
European Parliamentary Research Service estimates that corporate
tax avoidance results in a loss of tax revenue to the EU of about
€50 billion to €70 billion each year.
Write to Jason Douglas at jason.douglas@wsj.com and Sam
Schechner at sam.schechner@wsj.com
(END) Dow Jones Newswires
February 11, 2016 07:35 ET (12:35 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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