Google agrees to pay £130m in back taxes after an audit by UK tax authorities | Hacker News Reader

Google agrees to pay £130m in back taxes after an audit by UK tax authorities

bbc.com

99 pointscredo83 comments

"Despite the UK being one of Google's biggest markets, it paid £20.4m in taxes in 2013."

Squeeze the SOBs. This was the response from Google Australia boss, Maile Carnegie about tax:

"called before the Senate tax inquiry to answer accusations that the company was dodging tax here after revelations its Australian arm paid $7.1 million in tax in 2013 on a profit of $46.5 million and revenue of $357.7 million." [0]

and then:

"criticism of the company’s tax bill was understandable, but failed to recognise the level of investment the company made in the local economy. She pointed to the presence of 450 Google engineers in Australia, who she said conducted work that could easily be done more cheaply elsewhere." [1]

[0] "Google Australia boss Maile Carnegie: People, get ready" ~ http://www.theaustralian.com.au/life/weekend-australian-maga...

[1] "Google boss calls for simpler, transparent global tax system" ~ http://www.afr.com/technology/technology-companies/google/go...

They paid taxes but they were in Ireland likely. This is something you agreed to as legal when the UK signed one of the EU treaties.

If you disagree with that (and I totally understand why you would), that is the root cause, and that is the treaty (aka law) that needs to be revoked.

Alternatively, the UK could choose to have a lower tax rate than Ireland, in which case all of the EU tax bills would flow there instead of Ireland for multinationals. That said, you can see how that would end up being a race for the bottom.

Its not completely that simple but it's pretty much that simple.

What are you talking about? These treaties exist to give a fair treatment to companies and individuals that do not cheat on the scale.

That's why Europe needs to commit to either "the ever greater union" (at least in a fiscal sense) or kind of bin it off altogether and engage in the race to the bottom like you say

They won't have paid taxes in Ireland. that's the point.

Like Apple google negotiated a deal that only Ireland profits are taxed in Ireland but European profits are declared there but are untaxed.

The UK could reduce it's tax rate to 1% and they'd still have their Irish tax structure as that gives them 0% across all of Europe.

It's hard to go lower than 0.

Why are European profits declared in Ireland untaxed? I don't understand that part

You don't declare profits. You just invoice or lend between international elements of your group with timing such that at the end of year/quarter/reporting period in each jurisdiction you've lost money or made none.

A lot of money vanishes this way, a lot of money is invented this way.

Ahh. That's smart. I guess that's related to the other strategy I've heard of national HQs charging each other made-up sums in 'branding fees' to use the company logo.

Part of the EU rules is that it is a single market. However the Irish deal treats it as individual markets from the point of view of the Irish government and soobpy collects taxes on the Irish generated part.

What disingenuous horseshit. Google hires engineers in Australia because the engineers it needs are in places like Australia, London and Silicon Valley. It's rot to present this as some sort of public benefit when it's pure self-interest on the part of Google.

Google in Australia has benefitted from the security and institutions of Australian society, thus it should contribute to them.

This usually works like this: company doesn't pay tax, HMRC has to spend lots of money to prosecute them, company settles to pay a fraction of the tax. Doesn't seem fair to me but HMRC already spent lots of money and to get them to pay it all up they would have to spend even more so in the end they would get less making them willing to compromise.

Doesn't this crate an incentive for companies not to pay tax? Worst case scenario is you have to pay a fraction of that tax later.

I think this is a change from that honestly, if I'm remembering correctly UK tax law was changed so that companies deemed to be going against the spirit of the law after an audit could be forced to pay the appropriate amount of tax - I imagine this is a consequence of that.

    > against the spirit of the law

Those are dangerous words...

Well that was my memory of it, how they put it can be read here, section B2.

https://www.gov.uk/government/uploads/system/uploads/attachm...

Why? That's a core part of the definition of what it means to have a common-law legal system

This is an odd settlement though as it sort of ignores the law. Corporation tax is based on profits - which Google offshore to avoid UK tax (and many other places). Here they have said to them we see what you're doing - make nice. So they have drawn up a special formula (secret too) that pays a percentage of UK revenues - just for Google!

And of course whilst secret it leaves Google open to manipulate their UK sales too - as whilst they clam some Billions in their UK accounts in their US accounts they claim many Billions more.

With their now secret formula the UK public will never be able to pin them down when questioning what they are paying.

It's shocking that there isn't an additional fine associated with it.

It's a pretty common spelling mistake.

Isn't the case here that if you loose in court you have to pay the costs of the prosecution? It is in other cases.

With only putting that in place, the prosecutor wouldn't have an incentive to settle if they think they're right.

lose

Don't forget that there's no punishment if you don't get caught, and if you do get caught, they'll ask you nicely to pay. If you don't, they'll forget it for you.

This set of rules only applies if you're a multinational. If you're you or me or a small or medium business, you'll go to prison for decades.

The world is totally fair.

All we need to do is vote for a party that doesn't rub shoulders with heads of large companies...oh, we can't, they all do or would do.

Our politicoeconomic system is constructed such that this is inevitable, yes. It rewards self-interest almost exclusively, and the more corrupt power you gain, the more corrupt power you gain.

I know several MPs on this country - I went to school with them. They're all of a particular type - egoistic, manipulative, not terribly clever - and inexplicably popular. One of them dressed up as a nazi for a party, and sexually assaulted a passed out girl. This was 15 years ago.

A large part of the reason for the shoulder rubbing is the same - school. In the US colleges and private prep schools are where these networks are built, in the UK, public (I.e. Private) school, and "doxbridge" are the power broking hubs. These people go on to run the world, as they inherit, and/or work with each other in their respective sectors. I largely shun my school network as I can't abide authoritarians, but my business is here in part at least because of it - started it with a friend from school.

One of the core tenets of fascism is strong collusion and protection between state and large corporate interests.

Wow, that was a Saturday morning angry ramble.

Please name and shame

Afraid not - there are others with stronger grievances against him than I, who may even be able to substantiate those grievances, who could do that job far better than I.

I also fear retribution, frankly - he's a bojo type, and scarily machiavellian.

Labour is slowly turning itself into that party.

Why can a super successful company like Google not take open pride in doing a bit of civic duty? The fact that they have to be cajoled into doing what is pretty much standard fare to make society function does NOT enamour me as a customer towards their long term well being in any way whatsoever - quite the opposite: I would happily jump ship if a transparent civilly minded alternative emerged (mostly thinking gmail/google-search here).

What would you think of a tax accountant who didn't try to save you money on your taxes (legally)? Probably you'd wonder why they have that job if they're not good at it.

For this sort of professional, their customers come first.

And, as a shareholder, what would you think of a CEO who didn't hire a tax accountant to make sure you paid as little tax as possible?

It's not like shareholders don't have to pay taxes on capital gains and dividends.

>>What would you think of a tax accountant who didn't try to save you money on your taxes (legally)?

It wouldn't be up to the tax accountant to make this type of decision. It would be the CEO going to them and saying, "hey guys, I know you have tried to minimize taxes in your past jobs, but we do things a bit differently here..."

re: downvotes. You gotta understand that tax accountants' job is more than just to minimize taxes.

That's cute. Why don't you set a good example for Google by sending the government double what you owe in income taxes this year? Just call it a gift, because you couldn't correctly call it a "civic duty."

In fact, you're in a better position than Google to do so. Any publicly-traded company like Google would be immediately sued for dereliction of duty to shareholders to minimizing taxes if they decided to start giving away extra money (shareholders' money) to the government.

By the way, in 2010 Google paid $2.3 billion federal tax on income of $10.8 billion.

Why would he pay double his income taxes to set an example? No doubt he is already paying the government what he legally owes in that respect.

Google on the other hand aren't, are they?

If your tax preparer tells you that, thanks to deductions written into tax law, you only need to pay half as much tax, do you tell them "no, leave the deductions off, I want to do my civic duty"?

In this case, the UK government disagreed with the interpretation of those deductions, leading to a dispute that this article reports the resolution of. But that doesn't seem like any reason to claim that it's the "civic duty" of anyone, person or corporation, to pay more tax than they absolutely have to.

The fallacy here is that when you look at the numbers, they're not just using ordinary deductions - they can't because then they couldn't arrive at these results.

These kind of things work by deliberately setting up perverse virtual organizational structures to take advantage of complex loop holes. It is abusive, in the strict term of the word.

Using your analogy, would what you say if your tax preparer told you that if you proforma-married a woman in country X and used her name to set up a non-existing company in country Y, because then you'd qualify for certain deductions?

Comparatively in terms of size of the commitment you example would be more like an accountant telling Google that they could make big savings if they moved 10k employees across to a tax haven.

A better comparison for what is happening would be your accountant telling you you could pay them 1% of your yearly earnings extra and they could set you up to save many times that in tax.

Amazingly the government has a form that you can visit to make a gift to the US treasury, should you so please:

https://www.pay.gov/public/form/start/23779454

More amusing is that the FCC has started calling their fines "voluntary contributions to the US treasury".

> Any publicly-traded company like Google would be immediately sued for dereliction of duty to shareholders to minimizing taxes

There is no such duty in law. What they have to do is operate in accordance with the mission statement in the annual report and this is decided by the shareholders at the AGM.

If this said "we will pay maximum taxes in host countries where we operate" then shareholders could sue them for not doing that.

Are their any good examples of large multinationals who have taken a stance similar to this?

I don't know about the "we pay taxes" specifically.

But there are examples like Google and Facebook "don't expect any dividends" [1]

Then there are a whole host of Corporate Social Responsibly activities [2] where companies promise to spend income on social programmes and other nice things.

CSR is a growing movement.

You can participate in ISO 26000 [3] which has a section on involvement in the community and other activities which potentially eat into raw profit.

Companies can also get certified as SA 8000 [4] compliant but that is aimed more at the treatment of workers.

[1] http://www.fool.com/investing/general/2014/11/06/why-google-...

[2] https://en.wikipedia.org/wiki/Corporate_social_responsibilit...

[3] https://en.wikipedia.org/wiki/ISO_26000

[4] https://en.wikipedia.org/wiki/SA8000

I do, pretty much. I'm a freelancer with my own limited company. I could pay myself pretty much entirely from dividends (=lower tax rate) rather than wages subject to income tax. Many people do. Instead, I pay myself a living wage with standard PAYE income tax/National Insurance, and only use the dividend if I've made a profit in the year.

Am I minimising my tax bill? No. But being a decent human being who contributes to a civilsed society is more important to me. Some of us actually believe in this "don't be evil" stuff.

How's that different from any other freelancer? They all pay themselves a salary until they get to the higher income tax bands, then they pay a dividend. That's the most tax efficient way of doing it usually due to the presence of the personal allowance on income.

The government will then spend that money on dropping bombs on people in Iraq and Syria, propping up the housing market with dubious schemes and helping already wealthy pensioners.

You might be better optimising your affairs for lower tax, then spending the money you gained on something more ethical.

I wouldn't disagree on the specifics, but in the round I believe in a tax-funded government. Our county council is closing children's centres, removing rural bus subsidies, cutting back education support, and a thousand other cuts. The more people that avoid tax, the more cuts there'll be.

The tax receipts from individuals are a tiny fraction of those paid/due from large entities. The cuts are not due to individual tax dodgers, they are politically motivated.

In general Tory governments cut taxes, Labour increase them. As we swing back and forwards between parties the tax take oscillates backwards and forwards. This is all about political ideology rather than the actual budget.

ahh but you can't pay yourself entirely from dividends. at least, if you are speaking form the standpoint of a US citizen/tax payer. there is a vague but very well litigated stipulation that your wages must be "fair" and commensurate with the work you do for the corporate entity you own. if not, they'll just say your dividends were wages and you owe back taxes + interest and penalties.

I'm in the UK (hence the reference to National Insurance). The (roughly) equivalent legislation here is IR35 [1]. But it's not too onerous and there are plenty of people who successfully pay fairly minimal tax while complying with IR35.

[1] https://www.gov.uk/guidance/ir35-find-out-if-it-applies

In the UK you pretty much can pay yourself entirely in dividends. What many people do is pay themselves over the National Insurance threshold (£8064, which nowadays essentially matters only for being able to claim a state pension eventually) but below the personal allowance (£10600, below which you don't pay any income tax), and then the remainder in dividends. Note as of the 2015 UK Budget the law relating to dividends has changed which makes the tax due far closer, and that comes into effect for the 2016/2017 tax year.

Because they are a US publicly-traded company. By law, Google only exists for the benefit of its shareholders. Everything else Google does, good or evil, is simply a means to that end. That's how US corps work.

But since its management own a large amount of google shares, this argument is not very convincing.

Because these managers put personal preferences above shareholder value? They won't remain managers for very long at that rate.

Companies like Google should be taxed on revenue, if they hide their profits.

The term "agrees to" really bugs me...

But it's likely very accurate. The article doesn't seem to say they were compelled to do anything by legal force instead they worked with the regulators and came to a mutual understanding rather than forcing it to go through a long, complex, and uncertain legal process.

Lots of places are increasingly cracking down on the legal and ethical grey area of tax avoidance/minimization. The outcomes (like this one) are long coming but still positive. Lots of populist folks would like to see heads roll, but what's actually happening is probably better because it balances the interests of the people, the corporations, and the regulators. They're doing good things in a realistic way.

Yeah, I understand your point, but I think something is really wrong when a company is agreeing to pay taxes. Of course you could throw out a sacrificial lamb but that wouldn't change a thing. The way taxes are charged really has to be change for these big companies.

Genuine question: what would happen if my small UK company didn't pay its corporation tax?

You'd be fined, sat on with a ton of bricks and spend thousands on accountants' fees as they decided to 'investigate' you.

HMRC would launch an investigation in to your business. They would devote enough resources to make sure that you and your accountant were sufficiently overwhelmed. Most business owners can't afford the time and £'s it takes to defend such an attack, and will most likely pony up the cash.

Ninja edit: Most accountants in the UK offer up an insurance that covers your accountants fees if you are investigated by HMRC. It's about £120 per year for the insurance and in my opinion a very sensible form of protection. HMRC don't always need a reason to investigate, some "high risk" businesses are selected randomly.

I was about to reply after your first comment that this is why small business accountants are always pushing their insurance on you, but your ninja edit got there first.

> They would devote enough resources to make sure that you and your accountant were sufficiently overwhelmed.

Is this strategy not extortion?

For freelance earnings, I've been offered similar accountancy insurance as well. I was told that if I was investigated (not because I'd done anything wrong, just from random selection) it could cost several thousand to pay an accountant to do the work an audit would require. This always struck me as a broken system.

Asked and answered in this recent BBC iPlayer video, "The Town That Took On The Taxman": http://www.bbc.co.uk/iplayer/episode/b06ygl19/the-town-that-...

Didn't pay, or ran its affairs so as not to perhaps not be liable? Big difference there...

The absolute worst thing about this is that large corporations get a solid tax advantage in the UK compared to small businesses without the money or swing with HMRC to compete.

So from £30m to >£130m? How do you do that without tax evasion? Seems like the company officials need to be prosecuted.

Creative accounting which follows the law to the letter. They're not doing anything illegal (you'd imagine at least - I doubt it would be an easy task to decipher exactly what they're doing to determine legality) but certainly immoral.

> They're not doing anything illegal (you'd imagine at least - I doubt it would be an easy task to decipher exactly what they're doing to determine legality)

Fortunately (if a bit paradoxically), in the UK, for taxes, following the letter but not the spirit of the law is against the law.

http://www.legislation.gov.uk/ukpga/2013/29/part/5/enacted

> Fortunately (if a bit paradoxically), in the UK, for taxes, following the letter but not the spirit of the law is against the law.

Or, in other words, you can't actually follow what the law says, you have to anticipate what the government would prefer to be paid and pay that, or you might get prosecuted. That doesn't seem "fortunate" to me at all. How can anyone reasonably follow the law if the government can't even manage to write it down?

Personally, I'd favor the idea of a tax code that fits on a single page of normal-sized text, but everyone wants the myriad exceptions they've bought and paid for. And now it's not even sufficient to understand and follow the tax code as written? If people take advantage of "loopholes" written into the law, and the government doesn't like that, then they should fix their tax code to say what they mean.

Law: You must not do A. You may do b-zB-Z.

You: I'm doing a. Law doesn't say I can't. Just a, not A.

I don't see an issue with a fine. "Creative accounting" is a nice title for "finding loopholes." Loopholes, by their very nature, are UNINTENTIONAL gaps in the law.

Politicans draft the law. Tax firms merely collect on it. So you're asking politicians to foresee all possible loopholes. You might as well as a programmer to write bug-free software, except the programmer doesn't have any say or get to ask any questions about the implementation.

> Loopholes, by their very nature, are UNINTENTIONAL gaps in the law.

Cynical me says "Unintentional? I don't think so.."

I have read that in the UK it has been fairly common for people to work for the HMRC for a couple of years on secondment from large tax companies. They help make the laws, and then they go away and help the tax avoiders.

http://www.theguardian.com/business/2013/apr/26/accountancy-...

> in other words, you can't actually follow what the law says, you have to anticipate what the government would prefer to be paid and pay that, or you might get prosecuted.

I don't think that's a fair or accurate summary of the provision.

Follow the link and read the statue text - don't assume my glib one-liner told you everything you need to know about it.

Let's say I have a mortgage instead of renting, max out my 401(k) contributions every year, marry a nonworking spouse and file jointly. Compare to someone who does none of those things: the tax rate will be a lot less.

You don't get mortgage relief as an owner occupier in the UK. The tax treatment of rental properties is somewhat complex depending on structure. There is no filing jointly here either. You can get tax relief for pension contributions up to a limit.

These are all using the tax system as designed.

IIRC the tax law in the UK was changed to more of a spirit of the law idea a while ago and this is presumably the first signs of that being applied.

I think it's related to this, but this is just what I can remember from some articles in the paper.

https://www.gov.uk/government/publications/tax-avoidance-gen...

Not sure I got this right, but they're saying the rules changed under them and the new rules increased the taxes?!

I think that's what google is saying, but HMRC is saying that google was misinterpreting the rules and/or evading tax.

From what I can see, it's down to the interpretation of the rules, and google's interpretation was, perhaps, somewhat creative.

Either way, it makes sense for them to pay up. They could challenge HMRC, but even if they won the UK government could just change the law so they're going to have to pay the tax no matter what.

This is a win for the working people in the UK who don't have the option of devising an elaborate tax shield. Now google is finally paying their fair share of taxes.

Yes, but when income tax goes up, just you try continuing to pay the old amount, using "ah but you changed the rules" as your reason to not pay the new amount.

So pretty much nothing to them?

And they'll be paying the appropriate UK taxes going forward.

Don't worry. So will every other company.

It should be pointed out that this £130M is intended to cover the last ten years.

Really? I'm not saying I don't believe you but I'd love to see a source for that. I thought 130M for one financial year was a drop in the ocean but 10 years is fucking outrageous.

Second paragraph of the bbc article.

I'd love to see an experiment with 1% revenue tax.

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