Why would they fine Google?

HMRC did not fine Google over its failure to pay the right tax despite the payment being almost a decade late, a committee of MPs has found.

But why would they?

The report found that HMRC, the body in charge of levying tax on individuals and companies in the UK, did not charge Google a penalty despite it underpaying tax over a 10 year period.
Individuals who do not pay the correct tax or submit late receipts are charged a fine for doing so.

That’s not so.

If the amount of tax you have paid is correct by the rules as they are, but then there’s a discussion about whether the rules really quite mean that and your bill is raised, then no, you as an individual will not pay a fine.

And here, again, is what the Google situation actually was. Simplified, but true, and yes this is absolutely what happened. I have checked.

Google IE pays some amount to Google UK to cover all that engineering work etc that the latter does. The amount it pays is governed by the transfer pricing rules. That’s the way international tax law works. Meaning that Google IE should be paying Google UK a rate which is at least somewhat in line with what it would be paying an independent company, one not a part of the same group, for the same work.

HMRC had a look at Google’s books and basically said: oi oi, that rate’s a bit low, isn’t it? Google shuffled its feet and muttered, well, if you say so. Thus the rate was raised. That meant more profit in Google UK which was then taxed at the normal rate (that 20% Matt Brittin talked about).

This is exactly the same as the Starbucks royalties case. Where they were paying 6% (?) to Holland for the brand name and HMRC muttered that perhaps 4% was more appropriate. Hmm,. mebbe you’re right.

This isn’t Google having lied, it’s not them having fiddled their books and it is absolutely nothing at all to do with them selling from Ireland into the UK. And given that the earlier rate is supportable, even if after discussion wrong, there’s no fines. It’s a difference of opinion that has been resolved.

The very fact that a fine was not imposed shows that HMRC does not think this is something culpable. It’s a difference of opinion over what the transfer rate should be.

Not that the PAC gives a shit about that, grandstanding bastard little tossers that they are.

6 thoughts on “Why would they fine Google?”

  1. Definitely grandstanding cunts, everything was very clear from the HMRC bloke who sat in front of them.

    No penalty as only levied for lack of care or other badness and there was none of that here he said.

    On the PAC website it still talks about Google’s “tax deal”. Again the HMRC bloke was very clear. There was no deal, no offer and counter offer of tax to pay. They just look at the facts, improved the transfer pricing comparisons which is what changed the tax due, and that was that.

  2. It’s exactly the same as the year when I changed from letting furnished to letting unfurnished, but forgot to drop the furnished allowance from my tax return. Spotted the error, declared it the next year and paid the unpaid tax the next year on top of the next year’s tax. No fines anwhere.

  3. jgh – no it’s not.

    It’s as if you gave a letting property to a family member and paid the resulting tax on the basis that it was worth £300k, only for HMRC to argue that in fact it was worth £350k so more tax was due.

  4. Pellinor – ok, yes in details, but superficially, the Google “deal” is in the order of acknowledging a mistake that was pointed out in last year’s tax submission and paying the underpaid tax along with this year’s submission. No fines involved.

  5. Strictly you could have had a penalty – it’s potentially a careless error, the disclosure of which was not prompted by HMRC. That’s a penalty of 0-30% of the potential lost revenue.

    In practice you’d be unlucky to get one – even if it wasn’t mitigated to the bottom of the range, you could ask for it to be suspended.

    If you simply added the tax on to the next return, HMRC may never have noticed that there was an error. Strictly it would be incorrect to do so (for income tax, anyway: it’s normally OK for VAT).

  6. It’s not “a deal” – it’s “an agreement.” The discussions with Google likely went back and forth a bit, with Google citing one relevant precedent and HMRC citing another, until they came out in the middle somewhere. Google aren’t stupid, and they no-doubt had some reasonable basis for their transfer pricing, even if it was too aggressive in HMRC’s view (likewise, HMRC aren’t stupid, no mater what Murphy says – they will have had some good arguments and precedents of their own).
    Many years ago, I was involved in transfer pricing for a multi-national chemical company, and our transfer prices were based on cost of production plus a mark-up to allow capital recovery and profit in the manufacturing side of the operation (it helped that we also bought from unrelated parties, and for long-term contracts the implied margins were similar).
    We routinely discussed transfer pricing with various taxing authorities (we produced in five or six countries, and sold in twenty or thirty). These discussions were always something between a discussion, an investigation, and a negotiation, with the tax man trying to convince us to change the TP to increase the tax payable in his country (and, of course, other tax authorities making the opposite argument). Sometimes we did, if they could convince us that there was evidence that our prices were out of line. If that happened we generally agreed that market conditions had changed, so the change in TP was simply in response to market, and penalties were rarely (if ever) applied.

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