INTERNET ADVERTISING GIANT Google should not be spared an investigation into the way it pulls the UK tax system's tail, according to a Parliament report from the Public Accounts Committee.
Google has been relatively open about its tax payments, and readily admits that it pays only what it is required to pay. The problem is that what it pays isn't much.
Google is not the only company to employ its accountants' creativity, but it has become a whipping boy. The UK Parliament Public Accounts Committee was asked to look into the company's accounts, and it was not smiling as it delivered its report.
"Google generates enormous profits in the UK. But despite an $18 billion turnover between 2006 and 2011 it paid the equivalent of just $16 million in taxes to the UK government," said Public Accounts Committee chari MP Margaret Hodge.
"Google brazenly argued before this committee that its tax arrangements in the UK are defensible and lawful. It claimed that its advertising sales take place in Ireland, not in the UK. This argument is deeply unconvincing."
Hodge said that although Google claimed otherwise, there is evidence that its UK based staff are engaged in selling, adding that the Irish arm is mostly administrative. She dismissed Google's claims of innocence.
"The staff in Ireland simply process the bills. Google also conceded at this second hearing that its engineers in the UK are contributing to product development," she added. "The company's highly contrived tax arrangement has no purpose other than to enable the company to avoid UK corporation tax."
The Public Accounts Committee is disappointed and surprised that HMRC has not made more effort to uncover "corporate tax avoidance".
"We have long been concerned that, despite HMRC having customer relationship managers for large businesses to understand these organisations, and its overriding duty to collect all tax due, it has not done enough to tackle corporate tax avoidance," it said in its report.
"In the case of Google, we could not understand how a few journalists, whistleblowers and MPs have uncovered what the Department had not."
It said that HMRC defended its position, stance and investigations, but acknowledged difficulties in dealing with "digital businesses".
"It concluded that the UK and other fiscal authorities will struggle with multinational digital businesses until those rules are updated," it added.
"The Department considered its work does already achieve an impact on large business behaviour. However, it also acknowledged there is more it can do to tackle avoidance and it could use more resources to do this."
Hodge expressed a loss of confidence in HMRC and called on the Government to prop it up and give it a larger stick with which to hit digital firms.
"Confidence in HMRC has also been weakened. It is extraordinary that the department did not challenge Google over the complete mismatch between the company's supposed structure and the substance of its activities," added Hodge.
"This is not specially to single out Google or indeed Starbucks and Amazon who had previously given evidence to us. The tax avoidance activities of these multinational companies are illustrative of a much wider problem. "The Government clearly needs to act to strengthen HMRC." µ