Tax and Google

On 2 February 2016, Alphabet (Google's parent company) overtook Apple to become the most valuable company in the world. Valued at over £320 billion it's an absolutely huge company with fingers in a huge number of pies around the world. However, this extraordinary achievement was overshadowed in the UK with Google's ongoing tax avoidance saga.

In a very quick nutshell: Google recently agreed a tax bill of £130million with the UK taxman (HMRC) to cover underpayment for the past decade. No sooner had this been agreed than it was treated as an outrage by many groups. Two major reasons were cited - that it was still an underpayment given the scale of the company's activities in the UK and it was rumoured to be a significantly lower figure than that agreed by Google France with the French taxman.

This past week the head of Google Europe, Middle East and Africa (EMEA) was hauled in front of the UK Parliament's Public Accounts Committee to answer questions question about Google's tax arrangements. Judging from all the press reports it seems it was quite a fierce grilling but didn't actually get anywhere to persuading Google to cough up and pay a bigger bill. There was some bluster and weak attempts to make it look like Google was a nice fluffy company which wasn't trying to avoid paying tax but Google's main argument was more or less "we're paying what we are required to pay by the laws that are in place and we've agreed the figure with HMRC".

The line of defence is pretty robust. However they've gone about it and whatever clever accounting methods and legal practices they've used, they've come to an agreement with the tax collectors/investigators and the company intends to pay that figure. The government can enforce a tax payment - it is not a charity that is raising funds thanks to its donors' better nature. Those who presume to rule in government have set the tax system and it's on them to enforce compliance. If the tax system is complicated enough that sharp accountants can find loopholes and legally avoid paying tax then that is a problem with the tax system not with the company that's trying to reduce its' tax burden.

If the government is unhappy with its tax receipts it can change the tax system - though it will then have to live with the consequent effects on how businesses and people change their behaviour, for example by moving their trading centres to different countries. Changes are starting to happen - there are now moves within the EU to clamp down on the avoidance privileges enjoyed by international companies who have been using the different tax systems in different countries to their benefit. And since the whole EU is being coordinated together on this companies can;t simply hop from one country to another to get around the change. Seems to me like a good move and a far more effective way to ensure companies pay an acceptable* level of tax than lecturing them on how immoral they are for avoiding tax.

* Acceptable to the tax collectors. Whatever level they do pay someone somewhere is going to be unhappy!

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