Google agrees to pay British authorities £130m in back taxes

Google has agreed a deal with British tax authorities to pay £130m in back taxes and bear a greater tax burden in future. The deal will cover a decade of underpayment of UK taxes by the company, which has been criticised in the past for its tax avoidance policies.

The company has previously defended its record, telling a US Senate inquiry last year that it was “simply the way the global tax system is working” and that the issue was for politicians to fix.

The executive chairman of its parent company Alphabet, Eric Schmidt, has previously said that Google was not doing anything wrong because it complied with tax laws around the world.

On Friday night a Google spokesperson indicated a change in policy. He said: “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.”

A Google spokesman confirmed reports that the firm was to pay £46.2m in taxes on UK profits of £106m for the 18 months to June 2015, as well as back taxes owed for the previous decade.

Osborne: Google tax deal vindicates government approach

The Guardian understands that Google’s 2014-15 taxes increased by £13.8m under the new formula.

An HMRC spokesperson 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.

“HMRC enforces the tax rules impartially, irrespective of the size or structure of the business. Last year, our compliance activities yielded £26bn in extra tax, including £7.3bn from the largest and most complex businesses.”

John McDonnell, Labour’s shadow chancellor, has called for a National Audit Office inquiry into the deal, , so that taxpayers could work out whether or not it represented value for money for Britain.

People will be “sceptical” about what he said looked like a “sweetheart deal”, he told BBC Radio 4’s Today programme on Saturday, adding that HMRC seemed to have settled for a “relatively trivial amount of money.”

McDonnell will be asking HMRC to publish full details of what it believed Google owed. He said he would raise the issue in Parliament next week as the issue needed “wider scrutiny”.

Richard Murphy, director of the campaign group Tax Research, said the “extraordinary” deal did not represent value for the British taxpayer. “We are claiming back a tiny extra proportion [of what Google has underpaid], way short of any reasonable amount of tax,” he said. “It looks as though Google has got a great deal, it must be laughing all the way to its Bermudan bank.

“George Osborne is not getting the deal the UK tax payer will be expecting. It is a special rate of tax that would not be available to anyone else.”

He said the new rate was likely to work out as less than the 20% corporation tax due on profits in the UK and questioned, therefore, how the £130m figure had been reached.

Google’s previous tax regime involved deals between its own subsidiaries that often saw its revenues being declared in territories with lower tax rates. In 2012, the tactic saw it pay £11.6m to the Treasury, despite generating £3.4bn of business in the UK.

The Treasury’s investigation looked into whether Google was skirting taxes in the UK by diverting its revenues to Ireland, its European headquarters.

Margaret Hodge, an ardent critic of tax avoiding firms during her time as chair of the public accounts committee, called Google’s tax regime “devious, calculated and, in my view, unethical”.

The move led to speculation that the company would now consider shouldering a greater tax burden in other European countries in which it currently engages in legal avoidance.

It has come under particular pressure in France, where François Hollande, the president, has lobbied his US counterpart Barack Obama over tax practices he dismissed as “not acceptable”. The country has lodged a claim for €1bn (£757m) against Google.

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