Last week, search engine giant Google faced questions in the United Kingdom regarding its unique tax agreement with Her Majesty’s Revenue & Customs (HMRC), which may currently be out of balance in comparison to tax expenses other businesses pay. This may be one of many cases in which international businesses are able to bypass tax payments in the United Kingdom through loophole methods. However these new developments may spark the beginning of large companies becoming more accountable and transparent with their tax agreements going forward. Furthermore, the level of publicity Google has received recently may bring the subject of corporate tax to the public’s attention, and as a result may influence future tax arrangements.
Google has grown over the years to become the world’s number one search engine. It now has a diverse range of products including Google Chrome Internet browser, Google Gmail, Google Play and advertising services. The majority of Google’s revenue comes from advertising, which amounted to 67.39 billion US dollars in 2015. However, Google has paid little in corporate tax in the United Kingdom in relation to the profits it makes each year. Therefore, their tax agreement appears to be out of balance and this suggests Google is being far from transparent in their business practices. However, the HMRC are being pro-active in attempting to hold Google to account for their actions, suggesting it may be becoming more of a challenge for international businesses operating in the United Kingdom, to avoid paying tax.
According to a Parliament publication, Google is able to justify limited tax payments by claiming their sales of advertising takes place in Ireland, a country with minimal corporate tax rates. However, Google’s sales revenue is mostly generated by staff in the United Kingdom, with UK clients making up the majority of sales.
The publication further states this elaborate tax set up may affect Google’s corporate image within the United Kingdom, highlighting the importance of influential companies to be transparent with their business activities. It also provides a list of productive recommendations for Google to consider if they are to change their corporate structure. For example, it suggests changing corporate structure, so Google pays tax where it generates profit as this may increase public confidence in the company.
Besides the tax responsibilities of international businesses, the HMRC plays a vital role in ensuring taxes are paid fairly in the United Kingdom. These recent developments concerning tax agreements may influence the HMRC to look more closely at multinational businesses. A small victory in restoring the balance, HMRC were able to come to an agreement last week with Google for them to pay £130 million in tax. Other large companies have been approached by HMRC regarding tax agreements such as Starbucks, who have released information on their tax approach on their website in attempt to increase transparency for customers and investors. According to the Starbucks website, they admit they have paid little in corporate tax in the United Kingdom, however acknowledge they need to do more to retain public trust. As such an influential company which is globally recognised, Starbucks claims to make valid contributions to the British economy through the creation of jobs.
The recent investigation into Google’s tax agreements in the United Kingdom may have been productive in holding the company accountable and encouraging Google to pay its fair share of taxes. This outcome may influence public trust in Google and may be the start of further investigations by HMRC on multinational businesses in order to regain balance. In this case, perhaps Google may need to publish its position on corporate tax in the United Kingdom like Starbucks has to demonstrate its transparency for the sake of its customers and investors alike.
What may the UK government do in the long term to encourage large businesses to pay their share of corporate tax?