The increase in Google’s revenue routed to Bermuda, disclosed in a Nov. 21 filing by a subsidiary in the Netherlands, could fuel the outrage spreading across Europe and in the United States over corporate tax-dodging. Governments in France, Britain, Italy and Australia are probing Google’s tax avoidance as they seek to boost revenue during economic doldrums.
Last week, the European Union’s executive body, the European Commission, advised member states to create blacklists of tax havens and adopt anti-abuse rules. Tax evasion and avoidance, which cost the E.U. $1.3 trillion a year, are “scandalous” and “an attack on the fundamental principle of fairness,” Algirdas Semeta, the European Commission’s head of taxation, told a news conference in Brussels.
“The tax strategy of Google and other multinationals is a deep embarrassment to governments around Europe,” said Richard Murphy, an accountant and director of Tax Research in Norfolk, England. “The political awareness now being created in the U.K., and to a lesser degree elsewhere in Europe, is: It’s us or them. People understand that if Google doesn’t pay, somebody else has to pay or services get cut.”
Google said that it complies with all tax rules and that its investment in various European countries helps their economies. In the United Kingdom, “we also employ over 2,000 people, help hundreds of thousands of businesses to grow online, and invest millions supporting new tech businesses in East London,” the Mountain View, Calif.-based company said in a statement.
Last year, Google reported a tax rate of 3.2 percent on the profit it said was earned overseas, even though most of its foreign sales were in European countries with corporate income tax rates ranging from 26 to 34 percent.
At a hearing last month in the United Kingdom, members of Parliament pressed executives from Google, Amazon and Starbucks to explain why they don’t pay more taxes there.
The United Kingdom, Google’s second-biggest market, was responsible for about 11 percent of its sales, or almost $4.1 billion, last year, according to company filings. Google paid $9.6 million in U.K. income taxes.
Matt Brittin, Google’s vice president for Northern and Central Europe, testified that the company pays taxes where it creates “economic value,” primarily in the United States.
Still, Google attributes some profit based on technology created in the United States to offshore subsidiaries, lowering its U.S. taxes, according to company filings and people familiar with its tax planning. Google paid $1.5 billion in income taxes worldwide in 2011.
In the wake of the parliamentary hearing, the House of Commons issued a report last week declaring that multinationals “do not pay their fair share” of tax. The committee also criticized the U.K.’s tax-collection agency, Her Majesty’s Revenue & Customs, for “not taking sufficiently aggressive action” and called on the agency to “get a grip” on corporate tax avoidance.
A spokesman for HMRC said that the agency “ensures that multinationals pay the tax due in accordance with U.K. tax law.”
France’s tax authority this year proposed increasing Google’s income taxes by about $1.3 billion. The agency searched Google’s Paris offices in June 2011 and removed computer files. Google is cooperating with French authorities and working with them “to answer all their questions on Google France and our service,” the company said.
— Bloomberg News