Google's Tax Deal With U.K. May Be Next in Line for EU Probe

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European competition commissioner Margrethe Vestager.

Photographer: John Thys/AFP/Getty Images
  • Vestager says she may probe Google if she gets a complaint
  • EU says it received SNP letter calling for investigation

European Union competition chief Margrethe Vestager said Thursday morning she’s ready to investigate Google parent Alphabet Inc.’s 130 million-pound ($185.5 million) tax deal with the U.K. if there are complaints. It didn’t take long for the first to surface.

"If we find that there is something to be concerned about, if someone writes to us and says, well, this is maybe not as it should be, then we will take a look,” she said in an interview on BBC’s Radio 4. At much the same time, Stewart Hosie, the deputy leader of the Scottish National Party, said he’d written a letter calling for a probe into Google’s arrangements.

Margrethe Vestager
Margrethe Vestager
Photograph: Victor J. Blue

Vestager’s comments signal that she’s willing to open another front in a sprawling probe into multi-national conglomerates’ tax deals in European countries that has already ensnared Apple Inc., Amazon.com Inc. and Starbucks Corp. News of Google’s tax settlement with the U.K. was met with outrage given Google’s massive sales in the country.

Vestager’s spokesman Ricardo Cardoso said officials got the letter and “will look at it and issues raised.” Google representatives declined to immediately comment.

‘Brexit’ Fears

An EU probe into Google’s affairs in Britain would risk inflaming tensions over European intervention in U.K. affairs just as the nation prepares for a possible June referendum on its EU membership.

Vestager has sweeping powers to order nations to claw back underpaid taxes if she concludes that they gave unfair deals to specific companies.

While her language is non-committal, the British public should in principle “be in favor of anyone forcing Google to pay more tax in the U.K.,” said Kai Struckmann, a lawyer at White & Case in Brussels. “But one cannot expect the ‘No’ campaign to be so rational,” he said, referring to campaigners for a British departure from the EU. “They may try to present this as yet another interference by Brussels with the U.K.’s tax sovereignty."

‘Sensitive’ Issue

The issue of EU investigations into national tax affairs “is clearly a sensitive one and the commission is not going to want to get embroiled in an unnecessary dispute with the U.K. in the run-up to a referendum on Brexit,” said Gregor Irwin, chief economist at Global Counsel, a strategic advisory firm in London.

“If the commission does investigate, I don’t think this will go anywhere as I doubt there is a case to argue here for violation of state aid,” he said.

Google will adopt a new approach for U.K. taxes, and the settlement covers taxes going back to 2005, the company said Friday. Alphabet, which owns the Google search engine, has been criticized for paying a fraction of the taxes due on sales in the U.K. For example, the tech giant paid $16 million in U.K. corporation tax from 2006 to 2011 on $18 billion of revenue, according to a panel in 2013.

The dispute over Google’s tax settlement with the U.K. deepened Tuesday after Labour finance spokesman John McDonnell demanded to know if Chancellor of the Exchequer George Osborne personally signed off on the deal.

‘Derisory’

“One analysis has put the rate down to about 3 percent, which I think is derisory,” McDonnell told BBC Radio on Saturday.

Osborne initially described the Google settlement as a "victory" for the Treasury’s push to reform tax. Within days, he was facing a backlash from the opposition, but also from within Conservative ranks. London Mayor Boris Johnson, a potential rival for Osborne in the race to succeed David Cameron as prime minister, said it was "absurd" to attack Google over the settlement because "you might as well blame a shark for eating seals."

Asked to comment on the criticism of the Google tax deal in a Sky News television interview Thursday, Osborne described it as a “major success.” 

Now ‘Paying Tax’

“My only interest, as the country’s chancellor of the exchequer, is to get the best deal for Britain -- to bring the jobs here, the businesses here and to make sure that taxes are paid here,” Osborne said. “When I became the chancellor, Google paid no tax. Now Google is paying tax and I have introduced a new thing called a diverted-profits tax to make sure they pay tax in the future.”

Google’s EMEA President Matt Brittin will appear before U.K. lawmakers to explain the deal next month. The hearing of the House of Commons Public Accounts Committee on Feb. 11 will also feature senior officials from the British tax agency, Her Majesty’s Revenue & Customs, the panel said Thursday.

Vestager’s comments came the same say as the EU commission proposed a slate of measures that would make it harder for international companies to dodge taxes by playing national rules against each other. 

Tax Commissioner Pierre Moscovici said he aims to get a deal on some of the more binding measures by June. He didn’t comment on the Google deal beyond repeating Vestager’s pledge to look at any complaints.

“Billions of tax euros are lost every year to tax avoidance,” Moscovici said. “Europeans and businesses that play fair end up paying higher taxes as a result. This is unacceptable and we are acting to tackle it.”

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