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5/17/2013
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British MPs Attack Google On Taxes

British politicians criticize Google and Amazon for failing to pay enough taxes in a country where they are reaping great rewards.

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Three weeks ago, Google executive chairman Eric Schmidt went on British radio to ask the nation to stop giving his company such a hard time over how little U.K. business tax it seems to pay.

Well, looks like his plea didn't really convince either British lawmakers or newspaper editors -- who both went to war with his firm, as well as the British arm of e-commerce behemoth Amazon, Thursday on the issue.

The problem: U.K. commentators seem to be increasingly uneasy that at a time of austerity to pay down debt, U.S.-based tech firms seem to be enjoying great success while paying what seems like next to no taxes for the privilege of doing business in that country.

[ In the meantime, Google keeps enhancing its services. Read Google+ Gets 5 Smart Changes. ]

So while Wall Street is told that, respectively, the companies made £3.2 billion ($4.9 billion) and £4.2 billion ($6.4 billion) out of their British operations last year, in the U.K., according to data published in a register called Companies House, they paid a mere £3.4 million ($5.2 million) and £3.2 million ($4.9 million), respectively, back to the state. That means Amazon got away with a corporate tax charge of a very modest 5.58%, for instance.

British customers account for more than one in every 10 dollars of sales for both companies, which grew their U.K. sales by a very healthy 20% last year. In addition, Amazon got £100,000 ($152,000) more in handouts from the British government -- £2.5 million ($3.8 million) -- than it paid in such taxes. (It is likely the money was funneled towards Amazon U.K. activities like a new distribution center in Hemel Hempstead and the opening of a set of offices near London's so-called "Silicon Roundabout.")

All this was the setting for some very sharp exchanges before a committee of British Members of Parliament. Google was outright accused of being "devious, calculated" and "unethical" by the group's chair, Margaret Hodge.

Indeed, Hodge sniped at the firm's European boss using his own company's famous mantra, "Don't Be Evil." She said: "I think that you do do evil."

Meanwhile, though no representatives of Amazon appeared before Hodge's Committee, which is investigating tax avoidance by large corporations, they may well be asked to appear later. Instead, Hodge's ire was directed mainly at Google's VP of sales and operations for Northern and Central Europe, Matt Brittin, who stuck to the same line of defense outlined last month: Google abides by the law, pays what it needs to, and so forth.

Google claims that that "all" its activities "really" happen in Ireland, which means that British Google is merely a service operation for that office and hence can legitimately escape direct taxation inside Great Britain. But many observers feel the committee scored an effective point by getting Brittin to talk about Google U.K. staffers' ability to close sales or not.

However, Hodge and her team claimed they had different information on the matter from insiders -- a claim that led to some quite strange discussions with Brittin over what constitutes sales "commission" versus a "bonus." (Amazon also routes all of its European activities through Dublin for the same reason, as do many U.S. multinationals operating in Europe.)

The growing political pressure raises the question of how much longer these companies can continue to do business here in quite the same way. A British member of the House of Lords, Lord Oakeshott, yesterday told The Guardian, "Clearly Google [is] driving a coach and horses through the spirit of the law." He called on Prime Minister David Cameron to remove Schmidt from a special business advisory council to show that his government is serious about fighting "tax dodgers."

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