HM Revenue and Customs has defended its widely-criticised tax deal with search giant Google, saying that the £130m in backdated tax it has secured came after a "thorough investigation" of the firm's affairs.
Campaigners and politicians from across the political divide have hit out at the size of Google's tax bill, which dates back to 2005, arguing that it falls well short of what the company would be expected to pay if it were charged at the full corporation tax rate of 20%. Some have pointed out that the £130m settlement constitutes approximately 3% of the firm's UK profits over the period.
MPs on both the Treasury committee and Public Accounts Committee have promised to look into the way HMRC taxes large multinationals, while shadow chancellor John McDonnell on Tuesday said there was "real anger" about the Google deal.
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But HMRC's business tax director Jim Harra told the BBC that while it was "a matter of public interest that multinationals pay the tax they owe", he believed the tax authority had reached the best deal possible in line with existing rules.
"We have a published strategy for how we resolve those disputes for all taxpayers large and small," he said. "And we make it clear that we only accept the full amount of tax interest and penalties that are due. Otherwise, if we can't reach an agreement on that amount, we will go to tribunal. We certainly don't apply any rate of tax other than the statutory rate that parliament has published."
Harra also argued that the 3% figure being used by those critical of the deal was based on a misunderstanding of corporation tax which ignored the fact that the majority of Google's UK sales over the period were booked in Ireland.
He said: "I think what commentators have done is they've looked at the sales by Google globally to customers in the UK [...] They've compared that with £130m and said 'Well, that's about 3%'.
"The basic problem with that is that that is not how corporation tax rules work. Corporation tax does not tax the profits on sales made to customers in this country. It taxes the profits on the activities that the group carries out in this country and the assets that it holds in this country.
"So, for example, if sales to UK customer are made from overseas or made using assets that are overseas then the taxable profit is not here in the UK for corporation tax purposes."
The HMRC business tax director also downplayed a report in The Times that Google was in the process of negotiating a tax settlement with France worth an estimated three times the amount has paid in Britain.
"There's certainly been no disclosure that there has been any outcome," Harra said.
"I'm satisfied that we have carried out a thorough investigation and that we have collected the amount of tax that is due under the law. And I'm quite happy to be held to account for what we've done."
Multinationals were, Harra said, beginning to recognise the changing environment around tax, and he argued that changes put in place by HMRC and the Organisation for Economic Co-operation and Development – including a Diverted Profits Tax – meant firms "cannot carry on in the way they have in the past".
But, pressed on whether HMRC was currently negotiating deals with other multinational tech firms such as Facebook or LinkedIn, he said: "At any one time we have about two-thirds of the UK's largest businesses under investigation and in the five years to March 2015 we collected £38bn additional tax from them as a result of our compliance efforts.
"So day in, day out, we are investigating them. We are resolving disputes with them or we are taking them to tribunal to get additional tax from them and I expect that will continue."
"Angry"
HMRC's first public interview on the deal came as Labour's McDonnell said taxpayers were becoming "extremely angry" about the deal, and hit out at ministers for citing taxpayer confidentiality as a reason not to disclose more details of the Google agreement.
He told Sky News: “The government can’t have it both ways, can it? At the weekend the chancellor George Osborne tweeted what a major success this negotiation was and then they tell us they can’t tell us the details of the negotiation or the details of the settlement.
"They’ve broken confidentiality themselves on the one hand for political advantage; now they’re using it to defend what many think is a very poor deal.”