Tax Avoidance-Google - Public Accounts Committee Contents

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.[1]

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.[2]

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.[3]

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.[4] 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.[5]

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.[6]

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.[7] 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.[8]

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.[9]

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.[10]

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.[11] 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]

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.[13] He recognised that UK clients would feel they were being sold to by UK staff.[14] 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.[15]

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.[16] 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.[17]

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." [18]

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.[19]

1   'HM Revenue and Customs: Annual Report and Accounts', 19th Report, Committee of Public Accounts, HC 716, 3 December 2012 Back

2   Ibid, paragraph 10, page 9 Back

3   Ibid, paragraph 10, page 9 Back

4   Q 50 Back

5   Qq 9, 14, 16, 21, 23, 26, 46, 135 Back

6   'How Google clouds it tax liabilities', Reuters, 1 May 2013 Back

7   Q1  Back

8   Qq 1, 14-16, 20, 25, 33, 124-129, 139, 190, 272 Back

9   'How Google clouds it tax liabilities', Reuters, 1 May 2013 Back

10   Qq 8, 17 Back

11   Qq 27, 174-185 Back

12   Q 85 Back

13   Q 110 Back

14   Qq 35, 40 Back

15   Qq 67-73, 79-83 Back

16   Q 122 Back

17   Qq 57-58, 60 Back

18   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

19   Q124-Q 128 Back

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Prepared 13 June 2013