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Google Faces U.K. Lawmakers as Osborne's Tax 'Victory' Sours

  • Expect `tough but fair' questioning, parliamentary panel says
  • Chancellor facing criticism over $188 million tax settlement

U.K. Chancellor of the Exchequer George Osborne’s self-declared victory over a 130 million-pound ($188 million) tax agreement with Google Inc. is proving more of a thorn in his side as lawmakers prepare to quiz the technology giant about a settlement denounced by critics as "derisory."

Parliament’s Public Accounts Committee will question Google executives and U.K. tax officials on Thursday about the way the sum was calculated after members of Osborne’s own Conservative Party and the Labour opposition said the payment, agreed by Google parent Alphabet Inc., wasn’t enough.

"I find it hard to believe that given Google’s profits in any one year, and given the amount of trading that goes on in the U.K., that 130 million after 10 years represents the true value of what they should pay," Labour Party lawmaker Caroline Flint, a member of the cross-party committee, said Wednesday in a telephone interview. "We will be tough but fair."

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Labour’s finance spokesman, John McDonnell, has twice written to Osborne asking whether he or his colleagues in the Treasury had contact with Google officials ahead of the settlement. Both the Treasury and Prime Minister David Cameron’s office have said the payment was as much as could be expected under tax law, and that the matter was the responsibility of the tax authorities.

No ‘Sweetheart Deal’

Writing the Daily Telegraph newspaper, Matt Brittin, Google’s European chief, said international tax laws should be rewritten so companies are seen to be paying the right amount but defended the company’s tax settlement with the U.K., saying Her Majesty’s Revenue & Customs carried out an “intensive review.”

“Some have suggested the settlement which concluded the audit was a ‘sweetheart deal’, a cut-price tax rate,” he wrote. “It was not. And let’s be absolutely clear: politicians play no part in deciding and settling tax audits. They set the rules, HMRC independently apply the rules and companies like Google follow the rules.”

The spat has sparked allegations that British tax law remains deliberately lax for multinational companies, in spite of a much-vaunted drive by Osborne to crack town on tax avoidance. London Mayor Boris Johnson, a potential rival for Osborne in the race to succeed Cameron, said it was "absurd" to attack Google over the settlement because "you might as well blame a shark for eating seals." The rules are the problem, he said.

Tax Strategies

Controversy is raging in Britain over strategies used by multinationals including Google, Apple Inc., Starbucks Corp. and Inc. to pay lower taxes. Alphabet paid $16 million in U.K. corporation tax from 2006 to 2011 on $18 billion of revenue, the Public Accounts Committee estimated in 2013. It has also faced rebukes from critics and regulators in Europe for using innovative tools to keep its tax rates lower in some regions.

"I’m not privy to, and nor should I be as a politician, the individual tax arrangements of any individual company," Osborne said in an interview in Rome on Feb. 5 when asked whether he would seek similar arrangements with other companies, such as Facebook. "My sole interest is in bringing jobs and investment to Britain and making sure that while our taxes are low they are paid."

The dispute over Google comes as European Union antitrust authorities investigate tax deals Apple and Amazon struck in Ireland and Luxembourg. They have also started a high-profile probe into how Google shows shopping-search results.

‘Absolutely Furious’

“People are absolutely furious about the fact that these large companies appear to be avoiding paying the rightful amounts,” Deidre Brock, a Scottish National Party lawmaker who also be questioning Google and the tax officials, said in a telephone interview. “Everyone watching this will be looking for a much fairer deal.”

Representing Google will be Brittin and Vice President Tom Hutchinson. The Public Accounts Committee will also question Lin Homer, the chief executive officer of HMRC, and other tax officials. When Brittin and Homer appeared before the panel in 2013, Chairwoman Margaret Hodge accused Google of doing “evil” because of the way it sought to minimize its U.K. tax bills and told Homer she had “lousy judgment.” The panel, now led by Labour lawmaker Meg Hillier, begins its hearing at 10 a.m.

“I would hope that if Google are being requested for more transparency for their tax dealings they might set an example and act as an encouragement to those companies that have been even less open than Google has,” Brock said.

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