MPs have launched an inquiry into Britain’s tax arrangements amid allegations that governments have allowed Google to miniscule amounts of corporation tax since 1996. Critics say the internet giant has taken Britons for fools and sullied the name of capitalism in the process.
In the face of mounting criticism over Google’s tax payments in Britain, the House of Commons Treasury Select Committee has confirmed it will examine whether the state’s tax laws require reform.
Although the inquiry is not focused directly on Google, it will investigate Britain’s waning corporate tax base and whether the UK’s tax regulator HMRC is doing enough to clamp down on tax avoidance.
The probe will also seek to uncover whether Britain’s tax regulations are robust enough to cope with an increasingly mezzanine global economy.
Outrage over Google's UK tax bill
Google announced last week it would pay just £130 million to the UK Treasury in a conciliatory gesture following a long-running row over the firm’s tax liabilities in Britain. Experts estimate the internet giant has paid just 3 percent in UK corporation tax over the last 20 years, despite an official corporation tax rate of 20 percent.
The firm’s deal with the government has sparked anger across the UK, with campaigners and politicians calling for more robust tax laws.
Speaking in the House of Commons, Chairman of the Treasury Select Committee Andrew Tyrie said Britain’s tax laws were too weak.
“The complexity of tax law is turning what should be a straightforward principle – that everybody should pay the correct amount of tax – into a piece of elastic,” he said.
“For corporation tax, for instance, the problem is exacerbated by the globalization of economic activity and any liability to tax that accompanies it.”
Tyrie acknowledged that corporations have a duty to their shareholders to minimize their tax liabilities. But he argued regulators also have a duty to find more effective ways to tighten Britain’s tax legislation.
“Google may be the symptom, but it is not the cause,” he said.
“There is a lot the government could be doing. Tax policy must be made more practicable and the tax system more coherent. Tax needs to be fair. It needs to provide more certainty and stability.”
'Playing us for fools'
After the deal between Google and the Treasury was brokered, Chancellor of the Exchequer George Osborne told The Guardian it was a major victory for the government. Speaking at the World Economic Forum in Davos, Switzerland, he said the settlement was a positive reflection on UK tax policy.
However, critics have sharply condemned the deal, saying it underplays Google’s tax responsibilities in Britain. Shadow Chancellor John McDonnell has called upon the Treasury to publish details of its negotiations with Google on how a settlement was reached.
“The chancellor has managed to create an unlikely alliance between myself, the Sun newspaper, the mayor of London and, according to reports, even No 10 this morning,” McDonnell told MPs in the House of Commons on Monday.
“All of us think this deal is not the ‘major success’ the chancellor claimed at the weekend,” he said.
“Doesn’t the minister agree it’s important that everyone is treated equally and fairly, whether they be large multibillion pound corporations or small businesses?”
The government's deal with Google has also been criticized by some Conservative MPs, who say it is not in the public interest.
Tory MP Steve Baker branded it derisory, while London Mayor Boris Johnson said large corporations should pay as much tax as their smaller competitors. Another Tory minister told The Times the amount of tax Google is paying in Britain is outrageous.
“These people are playing us for fools,” he said.
“I find it terrible that we allow companies to behave like this. It gives capitalism a bad name. We need to be much tougher.”
The government’s inquiry into Britain’s tax regulation will examine the performance of HMRC, the Treasury and Britain’s Office for Tax Simplification.
MPs will also inquire how states can collaborate in the international fight against tax avoidance, and prevent multinational firms from artificially moving profits across borders to slash tax bills.
Meanwhile, French officials are chasing Google for €500 million (£381 million) over a similar tax dodging scheme.
Google’s British arm is said to employ thousands more staff and generate three times as much revenue as its French equivalent. Nevertheless, the tech giant is seeking to negotiate a deal with France valued at three times more than it offered Britain’s Treasury.