George Osborne faces fresh quiz over £130m Google tax deal

Britain's chancellor of the exchequer, George Osborne, faced fresh questions last night over a tax deal with Google that allowed the company to pay just £130 million in back tax on 10 years of profits estimated at £7.2 billion. Shadow chancellor John McDonnell has demanded details of the settlement, asking Mr Osborne if he or his advisers were involved in arranging it.

The tax deal has provoked outrage in Britain, including among Conservative MPs, but HMRC, the revenue commissioners, have declined to give details of it, although they deny it means that Google’s effective tax rate is just 3 per cent. Britain’s standard rate of corporate tax is 20 per cent.

“This deal with Google raises a number of important issues about the tax treatment of large companies in the UK,” Mr McDonnell said in a letter to the chancellor.

“When times are tough it is more important than ever that everyone pays – and is seen to pay – their fair share.”

Downing Street backing

After an initial hesitation, Downing Street rowed in behind Mr Osborne, insisting the settlement represented a good deal, a view echoed by HMRC.

"We only accept the full amount of tax, interest and penalties that is due, otherwise if we can't reach an agreement on that amount we will go to tribunal. We certainly don't apply any rate of tax other than the statutory rate that parliament has published," Jim Harra, HMRC's head of business tax, told the BBC.

The £130 million deal ended a decade-long investigation by Britain's tax authorities into whether Google paid less than its fair share of tax by allocating profits earned in the UK to its European base in Ireland. As MPs condemned the payment as "derisory", the furore prompted the launch of two parliamentary investigations, one into Britain's corporate tax structure and another into the Google deal itself.

Elastic principle

“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,” said Conservative MP

Andrew Tyrie

, chairman of the Treasury select committee.

“A corporation’s duty to shareholders will be to minimise its tax liability. It should be the duty of those making tax policy to find better ways to limit the elasticity. Google may be the symptom, but it is not the cause. There is a lot the government could be doing.”

Outrage over the tax settlement has been fuelled by reports that HMRC did not challenge Google's claim that it has no "permanent establishment" in Britain, its biggest market outside the United States. This claim is central to Google's justification for a complex arrangement under which it can book all its sales to British customers through an Irish subsidiary, from where the profits are diverted to the tax haven of Bermuda.

The Times reported yesterday that Google is negotiating a tax settlement with France worth three times more than its British deal, despite the fact that the company earns much more in Britain, where it employs thousands more people.