Cantillon: ‘Double Irish’ works for Google’s UK tax

Another Google tax story, this time via the public accounts committee of the House of Commons.

After a big revenue settlement in London, a committee report casts new light on the firm’s affairs in Ireland and Britain.

As often happens in this milieu, there is quite a gap between the vast scale of the firm’s business in a given market and the tax it ultimately pays.

In 2015, Britain accounted for more than $7 billion (€6.34 billion) of Google’s revenues. For the 18 months to June 2015, however, UK accounts recorded revenues of £1.18 billion (€1.5 billion) and a £230 million taxable profit. Tax bill: £46 million.

If this is the trickle-down alchemy of the “double Irish” at work in real time, it’s no wonder it proved so contentious.

Dublin moved in 2014 to phase out the mechanism, but it remains in place for firms already using it until end-2020. At issue in HM Revenue’s inquiry was the allocation of British profits to Google’s Irish unit, headquarters for large tracts of the world.

Tax is further minimised via internal company transactions with units in the Netherlands and Bermuda.

All perfectly legal, of course, although the Commons committee was far from pleased with the deal.

A penalty was not applied, it added.

According to the report, the tax authority said that large firms engaged in transfer pricing can take “a lot of expert advice and opinion” to establish they have taken a “reasonable position in relation to a complex area of law”.

That is set to change, but don’t expect fireworks.

True, new draft laws would remove the “reasonable care” defence from big organisations.

Such laws would empower HM Revenue to apply penalties to large firms that are “habitually aggressive tax planners and habitually understate their profits as a result” and have ignored warnings.

As the committee observes, however, the tax body expects penalties will be applied only to “a very small number” of big companies as they are already changing their behaviour.