by John E Dunn

Google avoid huge UK tax bill

Dec 20, 2009
IT LeadershipIT StrategyTelecommunications Industry

Google‘s UK arm has been accused of employing clever accounting to virtually wipe out its 2008 UK tax bill despite huge earnings.

According to The Times newspaper, last year the company generated a healthy £1.6 billion ($2.58 billion) in advertising sales- 14 percent of the company’s total global revenue – but managed to pay only £141,519 in tax in the country, which itself was only tax on interest received for some of its cash pile while the money sat in bank accounts. Some individuals in the UK, and possibly inside Google itself, will probably pay more tax than this.

The bulk of the explanation is that Google is registered in the EU in Ireland, which levies much lower levels of corporation tax than in the UK. If Google was registered in the UK, it would have to stump up £450 million pounds.

The Guardian newspaper has taken a closer look at the accounts, and it turns out that paying tax in a low-tax country doesn’t stop Google reporting its expenses in the higher tax regime of the UK, the practice of ‘transfer pricing’. This explains how Google UK could report a pre-tax ‘loss’ of £26 million on an official turnover of £141 million.

All of this is completely legal, and in employing the technique to minimise tax, Google is only following established approach among other international companies.

Not long ago, such revelations might have been ignored, but in harder times an angry public is taking note of companies accused of self-interested accounting.

“Avoidance like this is hard to stomach at the best of times, but when the country is in recession and everyone is feeling the pain, it really sticks in the throat – it means higher taxes for the rest of us”, said influential deputy leader of the Liberal Democrats, Vince Cable. That politicians of his ilk are speaking out suggests that Google could have PR trouble heading its way on the other side of a UK General Election next year.