Google Told by U.K. Lawmaker It Is ‘Evil’ Over Tax Practices

A U.K. parliamentary committee chairwoman said Google Inc. was “evil” because of the way it sought to minimize its U.K. tax bills.

In an often-heated exchange with a Google executive today, Margaret Hodge, a Labour Party lawmaker who chairs the Public Accounts Committee, said the company was exploiting the rules and acting unethically.

“Your company says you don’t do evil; you do do evil, you use smoke and mirrors,” Hodge told California-based Google’s vice president for sales and operations in northern and central Europe, Matt Brittin. Hodge said Google practiced “devious, calculated and, in my view, unethical behavior.”

At stake is an attempt by lawmakers to get Google to pay more tax in the U.K. by establishing whether the company is selling its services in the U.K. Google says that its U.K.-based employees aren’t closing sales as that is done by employees in Ireland, and sometimes by the software itself, which has its non-U.S. international intellectual property rights based in Bermuda.

Brittin said he hadn’t misled Parliament at a November hearing, saying the company pays tax where it creates “economic value.”

“Nobody in the U.K. has had an opportunity to close a transaction with a customer,” Brittin told the cross-party panel in London. “I stand by what I have said.”

Today’s probe follows a wider international effort to get companies to pay more tax as governments cut spending programs to curb deficits. Apple Inc. Chief Executive Officer Tim Cook will be the subject of a May 21 Senate hearing on U.S. companies’ offshore tax practices, two people familiar with the inquiry said yesterday. Apple uses a similar strategy to the one used by Google to cut its income taxes.

Amazon Taxes

The Guardian reported this week that the U.K. arm of Inc. paid 3.2 million pounds ($4.9 million) in corporate income taxes in 2012. In its annual report in the U.S., Amazon reported U.K. sales that year of almost $6.5 billion.

Hodge pressed him on details obtained from former Google employees she called “whistleblowers.” She said they showed sales are being executed in the U.K.

“If sales activity is taking place in the U.K. you are misleading Parliament and the tax authorities in suggesting that is not happening,” Hodge said.

“Why don’t you call a spade a spade?” asked Richard Bacon, a Conservative lawmaker.

‘Double Irish’

In November, the committee grilled executives from Google, Starbucks Corp. and over their methods for avoiding U.K. taxes by pushing profits offshore. As first reported by Bloomberg in 2010, Google uses a pair of tax-shelter strategies known as the “Double Irish” and “Dutch Sandwich” to avoid taxes around the world.

Since 2010, Google has avoided about $6 billion in income taxes around the world by shifting billions in royalties through a subsidiary in the Netherlands and then into a Bermuda shell company, according to company filings in the U.S. and offshore.

The strategy has helped cut the company’s worldwide tax rate roughly in half, to 19.4 percent in 2012, compared with the combined U.S. federal and typical state income tax rate of 39.2 percent. On the profits it said it derived overseas, Google reported a tax rate of just 5.3 percent in 2012, according to its annual report.

Under Scrutiny

In the U.K., the company’s subsidiary reports similarly low taxes. The company reported nearly $4.1 billion in sales in the U.K. in 2011, according to Google’s annual report. Its U.K. subsidiary reported paying taxes of 6 million pounds.

As reported by Bloomberg in December, Google avoided about $2 billion in worldwide income taxes in 2011 by shifting $9.8 billion in revenues into a Bermuda shell company, almost double the total from three years before, filings show.

Google’s taxes are undergoing scrutiny around the world. The French tax authority in 2011 proposed increasing the company’s taxes by about $1.3 billion, as part of an examination first reported by Bloomberg. Google has said it is cooperating with French tax authorities.

During a second part of today’s hearing, Lin Homer, permanent secretary of Her Majesty’s Revenue & Customs, said the law needs to be changed before Google can be compelled to pay more tax.

Hodge said the tax authority was failing in its duty and should take a tougher stance with Google.

“We don’t trust your judgment,” Hodge said. “You have lousy judgment and the people making those judgments aren’t fit for purpose.”

In an interview with Bloomberg News, Hodge said she has had conversations with staff at the Treasury about changing the laws that make such profit shifting possible.

“They make some of the right noises, but when you see what they do in practice, you haven’t got the evidence that they are really determined,” she said.

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