Don’t Believe What You Read; Google Doesn’t Avoid Tax

It’s the results reporting season over in my native UK again and once again, as regular as the seasons themselves roll around, we’ve spluttering pieces in the press about how Google avoids all of this tax that it should justly and righteously pay. Which means it must be the time of year for me to point out that Google doesn’t in fact avoid paying UK corporation tax, whatever you might be being told in the newspapers.

To give you a flavour of that sputtering indignation, something from the Daily Mail, home of the indignant middle classes:

Last night it revealed in accounts filed to Companies House that it paid £20.4million in taxes last year – despite admitting earlier this year that it pulls in £3.3billion of revenues in Britain, largely from advertising.

But in accounts filed last night Google UK said it made a profit of £70.8million before tax on sales of £642million.

These numbers are artificially low because Google officially registers much of its British sales in Ireland, where the headline rate of corporation tax is 12.5 per cent compared with 21 per cent in the UK.

This is not quite true I’m afraid. There’s no tax avoidance (and most certainly no tax evasion, the illegal stuff) going on here. For Google doesn’t just “register”, officially or not, most of its sales in Ireland. It actually makes almost all of its sales from its Irish offices. This is true of just about all of their sales outside the US in fact. They all come from Ireland. And here’s HMRC on this very point:

Non-resident trading companies which do not have a branch in the UK, but have UK customers, will therefore pay tax on the profits arising from those customers in the country where the company is resident, according to the tax law in that country. The profits will not be taxed in the UK. This is not tax avoidance: it is simply the way that corporation tax works.

Most major economies operate corporation tax in the same way as the UK, so UK-resident companies are treated in a similar way in other countries. In other words, UK companies do not pay corporation tax to another country on the profits from sales in that country, unless they trade through a branch based there. Instead, they pay corporation tax in the UK.

That is the taxman himself speaking there and they really ought to know about tax avoidance.

Indeed, we can go further. Within the European Union companies are encouraged to treat the EU as just the one market. That’s what the entire Single Market project is about. So there’s actually a desire on the part of the authorities to get companies operating across the continent from just the one office, in just the one company based in just the one country. This is exactly what Google does: all advertising sales are from that Irish company. That’s what the system is set up to do and what Google is encouraged to do. So, they’re being good little boys when they do exactly that.

And as HMRC, the taxmen themselves say, this simply isn’t tax avoidance. This is simply the way that corporation tax works. Therefore Google isn’t avoiding tax, is it?