Google’s £50m tax bill and what it signals for digital firms

Headlines involving the finances of huge corporations such as Google, Facebook and Amazon will always attract interest and Google’s latest tax bill is no exception. It also opens up a wider conversation of the taxation of digital firms.

The tech giant’s annual accounts reveal that on UK profits of £202.4m, the company will pay corporation taxes of £49.3m. An increase of nearly £13m from last year’s £36.4m bill makes it Google’s highest UK tax figure to date.

Although Google’s European operation finds its headquarters in Dublin, where corporation taxes are lower, it pays a substantial administration fee for Google UK to operate as a sales and marketing arm in Britain. The total value of Google’s UK sales reach upwards of £5.7bn a year, however it only makes a profit on a small percentage of that figure. This is because the majority of the business’s intellectual value lies in Software Engineering which takes place in America, where Google pays the bulk of its taxes.

According to their most recent accounts, Google employs 3,280 people in the UK and both the government and the European Union are looking at ways to increase the amount of tax that Google and other international digital firms pay. A Commission proposal confirmed by the Treasury Minister, Mel Stride, as ‘the government’s preferred option’ has suggested that a new tax on the revenues of digital giants should be levied. This would raise up to £4bn across the EU, in theory a substantial portion of that could make its way to Britain, where some of the highest usage rates of these digital companies lie.

Dan Neidle, partner at Clifford Chance, suggests that the introduction of such a revenue tax would help the government get around ‘the thorny problem that many internet companies make little profits [or alternatively] huge losses’ despite their high revenues. He also warns that it may cause some technology companies to react by restructuring to ensure that they pay more tax in the US – with the result of less tax being paid overall in the UK.

“If you want to be kind,” he commented, “this is a proposal intended to discourage the use of tax havens but which won’t raise much UK tax. If you want to be less kind, it’s a proposal that looks like it’s taxing digital businesses, but isn’t really.”

Sanjay Mehta, partner at Katten Muchin Rosenman, said, “If this new approach were to be implemented so that revenues were taxed rather than profit, it could dramatically increase the UK’s taxing base in the tech sector. However, it would position the UK as an outlier in terms of international taxing standards.”

Several companies have raised concerns about ‘double taxation’, i.e. taxes being charged in different countries for the same activity. Pierre Moscovici of the European Commission has said that he wants to see an EU Agreement on the new tax ‘by the end of the year’ but some consider this over-ambitious, given that countries such as Ireland are opposing the move. Even so, the UK’s policy could be announced in the Budget in the autumn.