Gideon’s new ‘sweetheart deal’

Google has agreed to pay £130m in back taxes after an ‘open audit’ of its accounts by the UK tax authorities (HM Revenue & Customs – HMRC). The Chancellor, the benevolent George Osborne, has hailed this as a major success. The agreement covers underpayment of tax over a decade in the UK, its biggest market outside the US. At first glance, the government & HMRC don’t seem to come out of its deal with Google too badly. £130m certainly sounds like ‘loads of money‘ – it is more than I have ever earned or likely will earn in my lifetime.


However, £130m for a multi-national corporate ‘super-power’, which conducts business in the UK, is a very small number. Google’s UK revenue in 2013,  was approximately £3.8 billion (raised primarily through through sales of online advertising). Looking at the numbers, £130m is a pittance, and the internet giant has effectively been paying an annual rate of corporation tax of 2.77% over the last decade. Google’s tax bill is reduced because profits from its European sales are channelled to Bermuda. Google says its Bermuda operation does not impact the tax it pays in the UK.

We’ve got Google to pay taxes and I think that is a huge step forward and addresses that perfectly legitimate public anger that large corporations have not been paying tax. I think it’s a really positive step … I think it’s a big step forward and a victory for the government – George Osborne, Chancellor of the Exchequer, speaking at the World Economic Forum in Davos

Professor Prem Sikka (a tax avoidance expert with the University of Essex), who is involved in conducting a review of HMRC for Labour, estimates Google has avoided around £1.6bn in taxes over the last decade, despite earning 10% of its global revenues in the UK. In comparison to the profits Google has made in the UK in the last decade, the amount is ‘trivial’. The deal struck by Osborne has been described as ‘derisory‘ by Labour Shadow Chancellor John McDonnell:

It looks to me from all the independent analysis that this is relatively trivial in comparison with what should have been paid – John McDonnell, Shadow Chancellor 

Multi-national corporate ‘super-powers’ (Google, Apple, Amazon, Starbucks, Facebook ect) which conduct operations within the United Kingdom -dedicating immense resources to to customer profiling and advertising – acquiring mass amounts of user data, and profit from this,  run roughshod over the ‘tax man’.


For example, Facebook, another leviathan of the internet, was revealed recently to have paid only paid just £4,327 in corporation tax in 2014. Facebook made an accounting loss of £28.5m in Britain in 2014, after paying out more than £35m to its 362 staff in a share bonus scheme. Operating at a loss meant that Facebook was able to pay less than £5,000 in corporation tax to HM Revenue for the year. Many commentators consider Osborne to have negotiated another ‘sweet-heart deal‘ (akin to those between HMRC & Vodafone) to set a worrying precedent, essentially  undermining any pretence of a clampdown on tax avoidance.

I can’t understand why the deal with Google is so cheap. I’m worried if they are going to repeat that with other companies. What was agreed is far removed from what is required for sustainable corporation tax in future – Richard Murphy 

Yet, such complex tax structures are in a formalist sense legal. Sadly, with enough financial jiggery-pokery (a specialist technical term in tax law), tax can be avoided NOT evaded. In IRC v. Duke of Westminster  (1936) AC 1 Lord Tomlin pro-claimed:

Every man is entitled, if he can, to order his affairs so as that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure this result, then, however unappreciative the Commissioners of Inland Revenue or his fellow taxpayers may be of his ingenuity, he cannot be compelled to pay an increased tax.

Tax avoidance (tax mitigation) therefore is use of the tax law to achieve ‘anticipated tax advantages‘. Whereas tax evasion (which is apparently different) involves outright fraud, concealment, or misrepresentation in order to defeat application of the tax laws. See….totally….different…..


It is (in part) due to the nature of Britain’s ancient, un-codified constitution & system of law-making which enables these forms of ‘loop-holes‘. Britain’s constitution is no singular document – it consists of a mish-mash of of legislation, common law, convention and royal prerogative. Legislation, made by parliament, is the bedrock of Britain’s constitutional arrangement – i.e. the doctrine of ‘parliamentary sovereignty‘.

…Parliament has the right to make or unmake any law whatever; and further, that no person or body is recognised by the law of England as having a right to override or set aside the legislation of Parliament – A.V. Dicey, British jurist and constitutional theorist

The British constitution is based on freedom (but not really). I do not intend to get bogged down in legal-philosophy but to put it simply in essence we can do anything unless government specifically legislates against it. An important facet of this constitutional arrangement is ‘judicial interpretation’ of the intention of parliament in the construction of legislation. Judges when applying the law, must engage in an interpretation of the law to best fit the objective intentions of legislators. In terms of tax, where Parliamentary intention (as interpreted by the judiciary over time) is unclear as to how much tax we have to pay, we don’t have to pay that tax. This line of reasoning asserts that ambiguity in the tax code is an explicit expression of Parliamentary intention allowing the constitutional freedom to avoid paying tax. The international aspects of modern capital makes this immensely complex. 


Meg Hillier (Labour party chairwoman of parliament’s Public Accounts Committee) tweeted at the weekend she would call Google & HMRC to explain the ‘cosy deal‘. Overall Osborne’s performance in ‘clamping down’ on tax avoidance can be seen as piecemeal at best. In December The Office for Budget Responsibility (OBR) detailed that schemes initiated in Osborne’s war on tax avoidance had under-performed, falling short by £600m of any hearalded benefits. 18 of the 39 measures were found to be yielding less than expected, producing a total shortfall of £834m, while 10 were exceeding forecasts by £219m, resulting in an annual overall shortfall of £615m. The OBR said:

Most measures are within £50 million of the original estimate either way, but that there have been five measures where the average yield is lower by more than £50 million a year. No measures have significantly outperformed the original costing.

Margaret Hodge,  former chair of the UK parliamentary public accounts committee and MP for Barking, has previously stated:

…. people are finding it tough to manage their daily income, there are public expenditure cuts and small businesses feel hounded by HMRC, so I can well understand why there is huge anger at the behaviour of multinational companies that seek so aggressively to avoid paying their tax. I am particularly cross about the argument, which so many of them put forward, that because they pay other taxes they can decide voluntarily whether to pay corporation tax. We all pay our council tax, VAT and income tax; they pay business rates and employer contributions, and should also pay their corporation tax.

This is the central issue – fairness. The British people, who have faced the economic collapse of 2007, and now as we are ‘in this together‘ (austerity), want to see corporate titans who continue to do well to pay their fair share of corporation tax on the profits they secure from the activities they undertake in the UK. HMRC and the government must be tough on companies which do business in Britain, make huge profits here, but do not contribute fairly. There is a too cosy relationship between HMRC & big business, it needs to stand up for the interests of the British people who pay their taxes. The public, deservedly, want to see the burden of paying the cost of the financial crisis as evenly shared.

By Frederick Antonio Gallucci | International Law LLM | @gibblegbble


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