Google's £130m Deal With Taxman 'Derisory'

Google has reached a deal with the British taxman to pay £130m in back taxes in a move welcomed by the Chancellor who said it could see other big firms follow suit.

The agreement covers payments dating back to 2005 and means the internet giant will have paid around £30m extra tax a year.

However, critics have said compared with the profits Google has made in the UK in the last decade, the amount is "trivial" and should be around seven to 10 times more than that.

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Labour has dismissed the amount as "derisory" and has called for a "full report" on the deal from the Chancellor George Osborne.

The shadow chancellor John McDonnell told Sky News the payment amounted to about 3% taxation, which was "unacceptable when most people in this country pay much more".

He said it was another "sweetheart deal" like the one done with Vodafone, which has been criticised in Parliament.

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Mr McDonnell said: "I have been looking at what many independent commentators have been saying about how trivial this amount is.

"It (Other OTC: ITGL - news) is over 10 years and we are not sure if it is back payments or fines or what is the content of the payment and if you look at the amount of profits this company has made in the last 10 years, some commentators have said they would have expected the payment to be something like seven to 10 times more than what they have actually paid."

The agreement with HMRC does mean that from now on the firm will pay higher tax and they have not been fined or punished for tax avoidance.

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Mr Osborne has welcomed the agreement and suggested that it could see other large firms reaching similar deals with the taxman, although he would not be drawn on whether Facebook (NasdaqGS: FB - news) could be one of them.

He said the Government had collected tax from Google that the Labour government had failed to collect when it had been in power and it was "a bit rich" for Labour politicians to criticise the amount paid.

Speaking from the World Economic Forum in Davos, Mr Osborne said: "Decisions on individual taxes are for HMRC but we are talking about taxes that Google paid on profits in the years 2005 to 2011.

"By the way, those are years when this Government wasn't even in office. Now (NYSE: DNOW - news) we have got the tax being paid and the HMRC says that is the right amount of tax for the profit made by Google back then."

In March's Budget Mr Osborne announced the introduction of a so-called "Google tax" targeting firms that move their profits overseas.

The "diverted profits tax" is designed to discourage large companies from taking earnings out of the UK to avoid tax.

Mr Osborne also said he would close tax loopholes that enabled businesses to take account of foreign branches when reclaiming VAT on their overheads, with the new tax measures expected to raise £3.1bn over the next five years.

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A Google spokeswoman said: "We will now pay tax based on revenue from UK-based advertisers, which reflects the size and scope of our UK business.

"The way multinational companies are taxed has been debated for many years and the international tax system is changing as a result. This settlement reflects that shift and is in line with recent OECD guidance."

A HMRC spokesman said: "The successful conclusion of HMRC enquiries has secured a substantial result, which means that Google will pay the full tax due in law on profits that belong in the UK.

"Multinational companies must pay the tax that is due and we do not accept less."

Google paid just £20.5m in tax in 2013, despite raising $5.6bn in revenues in the UK, according to FT Weekend.

HMRC has been investigating if Google avoided paying tax by allocating profits to Ireland (Other OTC: IRLD - news) , the home of its European operations.

In September shadow chancellor Mr McDonnell told the Labour conference that if elected in 2020 the party would launch an "aggressive" drive to ensure multinational corporations pay "their fair share of taxes" as part of a bid to balance the nation's books fairly.