In Defence of Liberty

Driven by data; ridden with liberty.

On Google and Corporate Taxation


The £130m settlement has been called “derisory”. (Edited: City A.M.)

The internet search and technology colossus Google has paid £130m to HM Revenue & Customs, settling claims covering a 10-year period [1].

The immediate comparison is between the total UK corporation tax paid by Google since 2005, and the headline corporation tax rates in Britain over this period. An estimate by Professor Prem Sikka of the University of Essex is summarised in the Guardian as “just £200m in tax since 2005, on estimated profits in the UK of £7.2bn” [2].

“Reasonable settlement”

Taxpayer confidentiality — which is a key principle that should be considered carefully before we shatter it in rage — means that the Treasury cannot answer questions about Google’s effective tax rates. Financial Secretary to the Treasury David Gauke MP (Conservative, South West Hertfordshire) told the House of Commons [3]:

The statement made by Google at the end of last week is solid evidence that companies are changing their models and reviewing their structures because we have strengthened the rules. The statement comes at the conclusion of a lengthy inquiry by HMRC. The tax that individuals and companies pay is collected by HMRC enforcing the law, not politicians who are, rightly, not engaged in or informed of particular cases. I am therefore unable to go into he details of the inquiry’s conclusion beyond those made public at the end of last week. I would point out, however, that the National Audit Office examined the HMRC settlement process in 2012 and examined specific settlements. In all cases, the NAO concluded that HMRC obtained a reasonable settlement for the Exchequer.

One reason as to why the actual corporation tax paid differs from expectations based on the headline rate is that companies are permitted, as is standard practice, to gain relief from past losses on present profits [4]. Within the European Union, there is a cocktail of principles that dilutes actual corporation taxes further: the international standard of preventing dual taxation of personal and corporate income [5], the ability of any company to set up its headquarters and residency anywhere within the EU, and the ability of any EU-resident company to sell across the EU [6].

The Chancellor’s declarations on Twitter may not satiate public concerns about Google’s taxes, with the Shadow Chancellor John McDonnell MP (Labour, Hayes and Harlington) noting the “unlikely alliance between myself, the Sun newspaper, the Mayor of London and, according to reports, even No. 10 this morning”.

“A piece of elastic”

Andrew Tyrie MP (Conservative, Chichester), the Chair of the Treasury Select Committee, said laws had become too complex and elastic [7]:

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. For corporation tax, for instance, the problem is exacerbated by the globalisation of economic activity and any liability to tax that accompanies it.

One conclusion that may be drawn from the Google case is that tax avoidance is simply not that high to begin with. Corporations should be minimising the tax liabilities for their shareholders, and so corporations should be paying only what they are legally required to pay. Taxes should be simple, stable and predictable — paid without political interference.

If major reform was undertaken to simplify the tax system, particularly in regards to corporate taxation, the end result could be lower tax rates and more economic activity.


[1] Ahmed, K., 2016. Google agrees £130m UK tax deal with HMRC. BBC. Available from: [Accessed: 26th January 2016]

[2] Boffey, D., and Treanor, J., 2016. Google £130m UK back-tax deal lambasted as derisory by expert. The Guardian. Available from: [Accessed: 26th January 2016]

[3] Parliament UK, 2016. House of Commons Hansard Debate for 25 Jan 2016 (pt 0001). Available from: [Accessed: 26th January 2016]

[4] GOV.UK, 2013. Corporation tax: calculating and claiming a loss. Available from: [Accessed: 26th January 2016]

[5] GOV.UK, 2013. Double Taxation Relief for Companies. Available from: [Accessed: 26th January 2016]

[6] European Commission, 2015. . Available from: [Accessed: 26th January 2016]

[7] Mason, R., 2016. Google tax deal: MPs launch inquiry after criticism of £130m settlement. The Guardian. Available from: [Accessed: 26th January 2016]



This entry was posted on January 28, 2016 by in National Politics and tagged , , , , , .
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