A 'major success' would be a fair tax system, not this tiny Google deal


Even the government couldn’t sustain its boast about Google’s £130m tax settlement with HMRC being “a major success”.

George Osborne used the words at the weekend but, by Monday, the chancellor had downgraded his description to “good news.” The prime minister’s spokeswoman opted for even softer language – a “step forward” and a “positive step.”

A verbal retreat was inevitable. Anybody who looks at the Google deal can see three things. First, the sum, covering a 10-year audit, is tiny in the context of Google’s operations in the UK and presumed level of profit on UK revenues of $6.5bn (£4.6bn) in 2014.

Second, Google has not been obliged to change its business structure one jot. If anybody is entitled to claim a major victory, it is the company: HMRC has agreed Google does not have a permanent residence in the UK, a critical point for future tax calculations. The company’s European operations are based in Ireland and will stay there.

Third, there is zero transparency on HMRC’s arithmetic. Google has had to recognise slightly more profit in the UK, as opposed to Ireland, but the tax authority’s workings are a mystery. As far as one tell, the debate between HMRC and Google hinged on a narrow point: what level of profit margin should be attributed to the UK operation for services provided to the Irish unit? It is impossible, from outside, to know what conclusions HMRC reached, or why.

Treasury secretary David Gauke – attempting ineffectually to defend the deal in the Commons on Monday – made one relevant point. Remember that, whatever the sales line says, economic activity can still be deemed to have taken place elsewhere. He offered the example of a UK car manufacturer exporting to the US; the UK would expect profits on at least part on those sales to be taxed in the UK, not where customers bought the cars. In Google’s case, of course, the algorithms and software were invented in the US.

That point is easy to understand, but it is hardly a full explanation of why Google pays so little tax in the UK. The software may be American in origin but it is blindingly obvious, from the fact of 2,500 Google employees in the UK, that quite a lot of activity still takes place here. Equally, HMRC must have applied certain principles when attributing costs and profits between Ireland and the UK. Let HMRC explain those principles, rather than respond with the tired plea of “taxpayer confidentiality”.

The confidentiality card is particularly weak in this case. Google and Osborne were happy to publish selected highlights of HMRC’s settlement – the former to appear a good corporate citizen, the latter to try to appear a muscular chancellor. If limited disclosure is OK, both parties should be able to agree full disclosure for the sake of wider understanding.

Let’s hope Andrew Tyrie makes that point when his Treasury select committee opens its inquiry into UK tax policy and the tax base. Tyrie is right that Google is a symptom, not a cause, of complex tax laws that are “turning what should be a straightforward principle – that everybody should pay the correct amount of tax – into a piece of elastic”.

In these circumstances, it is ridiculous for the chancellor to proclaim a major triumph and then retreat when asked to explain his numbers. A “major success” would be a tax system for multinationals that is transparent and fair. The Google settlement fails on both counts.

Kingfisher hunts profit

Kingfisher has banged on for so many years about the advantage of being a pan-European retailer that you would think it would have tried to bank some of the benefits before now. Instead, it seems, the group is a collection of fiefdoms – B&Q (UK); Screwfix (UK and Germany); Castorama (France, Poland, Russia); Brico Dépôt (France, Spain, Portugal and Romania); and Koçtaş (Turkey).

A year after becoming chief executive, Véronique Laury thinks it’s finally time to get serious about the “unified” lark. Products will be sourced centrally, the way Ikea does it. Product lines will be cut from 400,000 to 200,000. The group will no longer buy 1,000 varieties of gardening glove.

It sounds like a dose of common sense, especially if profits will be boosted by £500m in 2021 versus a business-as-usual approach. In theory, that would represent a big leg-up for a company that made £675m last year.

In practice, you can understand why Kingfisher’s share fell 6%. The cash cost of the restructuring is put at a hefty £800m, indicating the challenge of rebooting 1,000 stores across 10 countries. And, as with any builder’s quotation, estimates should be treated with care. In a five-year overhaul, there is a danger that some savings slip between the cracks. Execution will be everything.

Powered by Guardian.co.ukThis article was written by Nils Pratley, for theguardian.com on Monday 25th January 2016 20.07 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010


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