1 Google's evidence to the Committee |
1. In November 2012 we heard evidence from Google
on how it manages its financial arrangements in the UK to reduce
its corporation tax liability. We heard evidence from Matt Brittin,
Google's Vice President for Sales and Operations in Northern and
Central Europe, who is based in Google's operation in the UK,
Google Ltd. In December 2012, we published a report which included
the findings from our examination of Mr Brittin.
2. We also invited to that hearing representatives
from Starbucks and Amazon to give evidence. Our intention was
to gain an illustration of a wider problem of possible tax avoidance,
and not to single out these companies as the only ones who potentially
are engaging in corporation tax avoidance.
3. At our hearing in November 2012, Mr Brittin
claimed that Google complied with the law in the UK, and paid
the tax required by every company in every country in which it
operates. Google located its group companies in low tax areas
or tax havens. The vast majority of Google's non-USA sales are
billed in Ireland. In 2011, Google Ltd recorded revenues of £396
million from Google Ireland for the services provided by its 1,300
staff, but paid corporation tax of only £6 million. Those
services included promoting Google products, providing education
training to clients on these products and making sure they worked
for UK consumers.
4. Mr Brittin emphasised that anyone who bought
advertising from Google in Europe was buying from Google Ireland.
He also asserted that nobody in Google Ltd in the UK was selling
Google products. He conceded that, of the 1,300 staff in Google
Ltd in the UK, around 700 were marketing and digital consultancy
staff, who were working with customers, but not in sales.
5. Mr Brittin was keen to stress that Google
Ltd was not engaging in sales in the UK, as this is a key factor
in determining whether Google has a 'permanent establishment'
in the UK. As part of an Ireland-UK tax treaty, an Irish company
would be subject to UK tax on its profits earned from UK activities
only if it were trading in the UK through a 'permanent establishment'.
If employees of the UK company had authority to conclude contracts
on behalf of the Irish company, and they habitually exercised
that authority, the UK company would be a 'permanent establishment'
in the UK. Mr Brittin
was adamant that staff in Google Ltd were not engaged in sales
that concluded contracts with UK clients, standing by the evidence
he gave us in November 2012 on this point, and aiming to support
Google's defence that it did not have a 'permanent establishment'
in the UK.
6. Since we received this evidence from Mr Brittin,
the Committee received information from of whistleblowers which
showed clear discrepancies with the claims made to us by Mr Brittin
in November 2012. On 1st May 2013, Reuters published
a report 'How Google clouds its tax liabilities.' The report
also challenged the evidence which Mr Brittin gave to the Committee
that Google Ltd staff were not directly engaged in sales activity
with UK clients.
7. We invited Mr Brittin back on 16 May 2013
to discuss the information gleaned from whistleblowers and published
by Reuters, and whether he wished to reconsider and clarify the
evidence he gave to the Committee in November 2012. We reminded
Mr Brittin that it is a very serious offence to mislead a parliamentary
Select Committee. We
also took further evidence from Google Ltd's auditors Ernst and
Young, and from HM Revenue & Customs (HMRC) about the tax
arrangements of multinational companies in the UK.
8. The whistleblowers, who included ex-employees
of Google Ltd, provided the Committee with details demonstrating
that Google Ltd's UK staff carried out the substance of work leading
to contracts with major UK clients. They also gave us a range
of evidence to support their assertions. This included, for example,
pay slips showing sales related bonus payments, and Google documentation
covering the entire trading and sales process within the UK. The
evidence presented to the Committee included a Google diagram
of the sales process interaction with UK clients, all of which
were executed by UK-based staff. The whistleblowers told us that
UK staff had been set sales targets and paid commissions for the
sales achieved. This evidence showed that Google Ltd's UK staff
were carrying the substantive work to generate the revenue from
Google's presence in the UK.
9. The Reuters' report drew on research including
an examination of: job descriptions for positions advertised by
Google Ltd; the online profiles and work objectives on 'LinkedIn'
of Google Ltd staff; and Google Ltd's UK corporate website detailing
its UK activities and functions. The Reuters' report also drew
on interviews with a sample of Google Ltd's UK clients about their
contacts with Google Ltd's UK staff. The Reuters' report claimed
that each source indicated clear evidence of direct sales activities
to UK clients by Google's Ltd's UK staff.
10. Mr Brittin continued to state that Google
Ltd's UK staff do not have the right to sell Google products,
as the rights are owned by Google Ireland. He told us that around
99 per cent of companies in the UK that spend money with Google
do so without talking to Google Ltd's staff as they conduct their
transaction online, though an automatic auction.
11. Mr Brittin accepted that the remaining 1%
of companies in the UK are those with the higher value prestige
accounts. These companies are responsible for between 60-70% of
the total spend of all British companies with Google. Google Ltd's
UK staff have a direct relationship with these clients and meet
them regularly. The
Google Ltd staff discuss with high value clients how many people
are searching for their products on Google, the cost for their
name and link to appear when people use search words, how to convert
appearance on Google searches into sales, and how profitable advertising
on Google could be.
12. Mr Brittin also acknowledged that Google
Ltd often seeks people with sales skills, that some staff have
sales in their job title, and conceded that it is has UK staff
who are doing lots of the aspects of selling.
He recognised that UK clients would feel they were being sold
to by UK staff. Mr
Brittin confirmed that UK staff have an advertising rate card,
which they can use to discuss prices with UK clients and negotiate
against these prices for different volumes. However, while he
accepted that UK staff could agree a sale, he stated that they
did not have the ability to commit Google UK Ltd to any contracts,
or to conclude a transaction, and that no money changed hands
within the UK.
13. Mr Brittin considered that the post descriptions
in Google Ltd's recruitment advertising, and the job descriptions
given by its UK staff on their 'LinkedIn' profiles, both of which
gave specific details of sales related responsibilities, did not
mean that was how Google Ltd operated in the UK or were relevant
for tax purposes.
Mr Brittin claimed that, prior to the establishment of Google
Ireland, all contracts with UK clients would have been signed
with Google Inc. rather than with Google Ltd in the UK.
14. Google also has at least 500 engineers in
the UK that assist with the development of its products, compared
to 17,000 engineers in California. Mr Brittin had told us at our
November 2012 hearing that these staff were not undertaking product
development and viewed its economic activity to be undertaken
in the US. We heard from a whistleblower that at Google's premises
in London systems developers are working the development of the
Android telephone management system. In contrast to his evidence
last November, Mr Brittin conceded that engineers in the UK are
contributing to product development. In November 2012 Mr Brittin
had told us that "The people in the UK
are not doing
the product development". When we asked in May 2013 whether
UK engineers are developing products, Mr Brittin said that "They
are contributing to the development of products, absolutely",
and told us that there was particular expertise in London on the
Android operating system for smartphones. He accepted that the
engineering work in the UK is creating economic value, while also
stressing that the intellectual property for products is owned
elsewhere, and that the Android work is led from California."
15. The Committee considered the reality of Google's
operations to be that sales to UK clients are the primary purpose,
responsibility and result of its UK operation, Google Ltd. It
was clear to us that it is Google Ltd's UK staff who add the value
in generating revenue in the UK from their close working with
its high-value clients, from whom Google Ltd generates 60-70%
of its revenue. It was particularly evident to the Committee that
Google Ireland has a very limited role, simply to step in at the
end of the process, to carry out the automated billing. It made
absolutely no sense to the Committee, to the former members of
Google staff who contacted us, or to Google's UK clients surveyed
by the Drum magazine, that these UK sales are, as Google attempts
to argue, actually sales from Ireland. This is especially the
case when sales are conducted in sterling and payment can be made
to UK banks.
1 'HM Revenue and Customs: Annual Report and Accounts',
19th Report, Committee of Public Accounts, HC 716, 3 December
2012 http://www.publications.parliament.uk/pa/cm201213/cmselect/cmpubacc/716/716.pdf Back
Ibid, paragraph 10, page 9 Back
Ibid, paragraph 10, page 9 Back
Q 50 Back
Qq 9, 14, 16, 21, 23, 26, 46, 135 Back
'How Google clouds it tax liabilities', Reuters, 1 May
2013 http://uk.reuters.com/article/2013/05/01/uk-tax-uk-google-specialreport-idUKBRE94005R20130501 Back
Qq 1, 14-16, 20, 25, 33, 124-129, 139, 190, 272 Back
'How Google clouds it tax liabilities', Reuters, 1 May
Qq 8, 17 Back
Qq 27, 174-185 Back
Q 85 Back
Q 110 Back
Qq 35, 40 Back
Qq 67-73, 79-83 Back
Q 122 Back
Qq 57-58, 60 Back
Qq 139-147, Q 512; 'HM Revenue and Customs: Annual Report and
Accounts', 19th Report, Committee of Public Accounts, HC 716,
3 December 2012, Ev 41-43 Back
Q124-Q 128 Back