Senior MPs have condemned Google’s deal to pay £130m in back taxes in the UK as derisory, with Labour calling for a National Audit Office investigation into the “trivial” settlement.
The search giant said on Friday it had struck an agreement with HM Revenue and Customs to pay tax that it has owed since 2005. Significantly, the company will also now start paying tax on revenue from UK-based advertisers.
Google, along with other multinationals, has used legal methods to lower its tax burden in European countries such as the UK – its biggest market outside the US – but has come under intense political pressure to change its practices.
The shadow chancellor, John McDonnell, said he would ask George Osborne for details of the deal in the Commons on Monday and criticised HMRC for letting Google pay a “relatively small amount”.
“It looks to me from all the independent analysis that this is relatively trivial in comparison with what should have been paid,” he told BBC Radio 4’s Today programme.
The Conservative MP Mark Garnier, a member of the Treasury select committee, said the agreement represented a relatively small amount of money compared with Google’s UK profits.
He told BBC Radio 4’s Today programme: “They are turning over $2.6bn (£1.8bn) a year and still paying relatively small amounts of tax.”
The chancellor welcomed the deal on Saturday, calling it a “major success”.
“We’ve got Google to pay taxes and I think that is a huge step forward and addresses that perfectly legitimate public anger that large corporations have not been paying tax. I think it’s a really positive step,” he said after addressing the World Economic Forum in Davos.
“I hope to see more firms follow suit and of course I’ve introduced a diverted profits tax which will require this going forward. So I think it’s a big step forward and a victory for the government.”
Meg Hillier, the chair of the Commons public accounts committee, will call Google and tax officials to explain the deal, which she said showed HMRC “admitting it pulled in too little tax from Google for nine out of 10 years”.
“The news that Google is paying 10 years’ back tax vindicates the public accounts committee’s vigorous pursuit of international companies that were running rings around tax officials,” the Labour MP said.
“We were shocked to learn of workarounds of the tax system that were considered normal behaviour by big corporations, but which appalled the individual taxpayer.
“HMRC now needs to assure taxpayers that it will keep up the pressure to tackle whatever the next emerging issue is in real time, rather than years later.”
An HMRC spokesman said: “The successful conclusion of HMRC inquiries has secured a substantial result, which means that Google will pay the full tax due in law on profits that belong in the UK. Multinational companies must pay the tax that is due and we do not accept less.”
Lin Homer, the HMRC chief executive, said earlier this month that she was stepping down after four years following criticism of the agency’s failure to prosecute more tax evaders and answer taxpayers’ queries efficiently.
Homer was made a dame in the new year’s honours list.
Margaret Hodge, the previous chair of the public accounts committee, has called Google’s tax regime “devious, calculated and, in my view, unethical”.
The Labour MP had accused companies of siphoning profits made in the UK to countries where they pay less tax, such as Ireland and Luxembourg.
Osborne announced a so-called “Google tax” in his March budget, targeting businesses that moved UK profits overseas.
The “diverted profits tax” is designed to discourage large companies from taking earnings out of the UK to avoid tax.
A Google spokeswoman said: “We have agreed with HMRC a new approach for our UK taxes and will pay £130m, covering taxes since 2005. We will now pay tax based on revenue from UK-based advertisers, which reflects the size and scope of our UK business.
“The way multinational companies are taxed has been debated for many years and the international tax system is changing as a result. This settlement reflects that shift and is in line with recent OECD guidance.”