Google could be forced to pay more UK tax by the EU after officials confirmed they will look into complaints from the SNP and Labour that the tech giant’s £130m settlement amounted to special treatment.
The European commission said it would look at all complaints received, hours after the commissioner in charge of EU competition policy, Margrethe Vestager, said EU authorities could investigate the British government’s deal with Google.
Vestager said it was too early to say if Google’s deal should be investigated but added: “If we find that there is something to be concerned about, if someone writes to us and says ‘maybe this is not as it should be’, then we will take a look.”
Stewart Hosie, the SNP’s Westminster spokesman on the economy and deputy leader, said: “The truth is that we know very little about the settlement reached between the tax authorities and the company. These discussions have taken place in private, little detail has been revealed by the Treasury and the methodologies employed by HMRC are shrouded in secrecy.”
John McDonnell, Labour’s shadow chancellor, also wrote to the commission last night to raise concerns about the deal, citing public concern about the “low sum offered by Google in lieu of taxes dating back over a decade”.
“We believe £130m to be significantly lower than a fair or reasonable assessment of Google’s UK turnover and profits would suggest, with experts suggesting that Google has been levied and effective tax rate of around 3%,” McDonnell said.
EU competition officials have previously shown themselves willing to act against tax deals struck by member states.
Settlements reached in private between Starbucks and the Netherlands, as well as between Fiat Chrysler and Luxembourg, were ruled to be unlawful state aid aid by the European commission in October. The EU is currently investigating Ireland’s tax arrangements with Apple, and Luxembourg’s tax treatment of McDonald’s, and recently ordered Belgium to collect an additional €700m from 35 companies.
A spokeswoman for the European commission said it will “look at … all letters received from stakeholders.”
“This of course does not prejudge the opening of any investigation, which must be based on concerns under EU state aid rules.”
The chancellor refused to back down on Thursday, saying it was indeed a success that: “When I became the chancellor, Google paid no tax. Now Google is paying tax and I have introduced a new thing called a diverted profits tax to make sure they pay tax in the future. I regard that as a major success,” he said.
Three leading HMRC officials – Lin Homer, Edward Troup and Jim Harra – and Google’s UK chief Matt Brittin have now been summoned to justify the deal to the House of Commons public accounts committee. They have agreed to give evidence in a hearing on 11 February, the committee said.
HMRC has been subject to persistent criticism over recent years about its tax deals with big corporations, including a settlement with Goldman Sachs that waived millions of pounds in interest payments.
It was cleared by a court of an unlawful deal but it emerged during the case that HMRC had given regard to the potential political embarrassment that could have been caused to George Osborne during the case.
Data from HMRC shows that it ended up accepting the company or individual’s own proposals for a tax settlement in half of all disputes that were referred to its top commissioners for approval in 2014-15.
Google’s deal was completed after a six-year probe. Its UK accounts from 2013 reveal that HMRC was at that time only looking into with “share-based compensation” payments, suggesting it was unrelated to concerns about the jurisdiction of sales.
No 10 dismissed the idea of an EU tax probe into HMRC’s deal with Google, saying it was not necessary.
However, the European developments will add to the pressure on David Cameron, who has been accused of allowing the internet company to hold too much sway over his government. Critics range from the former business secretary Vince Cable and Margaret Hodge, former chair of the public accounts committee, to the media tycoon Rupert Murdoch.
Google representatives have met with six ministers in the eight months since the last general election, according to official government records, and its executive chairman, Eric Schmidt, was on the prime minister’s business advisory board until last year.
Asked on Thursday whether Cameron had ever discussed Google’s tax affairs with the company, a No 10 spokesman said he was not aware if the subject had come up.
EU authorities also outlined plans on Thursday for new legal proposals aimed at closing the most common loopholes. “The days are numbered for companies that avoid paying tax at the expense of others,” Europe’s most senior tax policy official, Pierre Moscovici.
Moscovici, a former French finance minister, said aggressive tax avoidance costs the EU between €50bn-€70bn (£38bn-£53bn) a year – the equivalent of Bulgaria’s GDP and five times more than the EU spent on the refugee crisis in 2015.
Without saying which countries, he said some member states had “more avoidance friendly regimes [where] it is too easy for companies to lower their tax bills”.
Moscovici made it clear the European commission was ready to investigate the UK’s deal with Google “if the need arises”. He added: “the commission is clear that all companies must pay their fair share of taxes where they earn their profits”.
Although a decision from the European commission could be weeks away, pressure for a full-scale EU investigation is likely to grow. Catherine Bearder, a Liberal Democrat MEP, added her voice to calls for the EU executive to act. “More transparency is needed across Europe to end these cosy deals and ensure multinationals pay their fair share,” she said. Alain Lamassoure, a French centre-right MEP, who chairs the European parliament’s special committee on tax, described Google’s tax treatment in the UK as “absurd”.
The new European steps against tax avoidance will restrict member states’ ability to offer corporate tax deals in future.
The smallprint includes steps to prevent companies from setting up a subsidiary in a non-European tax haven, which is then used to pay dividends back to the European parent company not subject to tax.
Companies will no longer be able to shift profitable intellectual property that has been mostly developed in Europe to a low-tax jurisdiction to avoid paying tax. There will be a catch-all anti-abuse rule empowering governments to close down new loopholes devised by creative accountants. “We don’t know which schemes will be invented tomorrow, so it is important to have a general safeguard,” an official said.
Google has said:“After a six-year audit by the tax authority we are paying the amount of tax that HMRC agrees we should pay. Governments make tax law, the tax authorities enforce the law and Google complies with the law.”
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