I noticed this letter on my Twitter timeline last night:
Dear Mr Morse,
I am writing to you with regards to the tax settlement between HMRC and Google UK that was announced in the media on Friday 22 January.
Today the Prime Minster said during Prime Minister's Questions that “HMRC's work is investigated by the National Audit Office”.
I write to ask if the NAO will investigate the process by which HMRC agreed the settlement with Google UK for tax owed between 2005 and 2015?
This process has taken over six years, and the outcome appears to have resulted in an agreement to pay a very low effective tax rate. This has caused understandable concerns about the impact on our public finances. Tax revenue not collected is revenue foregone — this has important implications for the funding of public services.
Many Members of Parliament from all parties are concerned that HMRC appear to have accepted Google UK's argument that the only economic activity that Google UK undertakes in this country - where it asserts that it does not have a permanent establishment — is sale of adverts, not their actual display or use.
This is despite the fact that the company provides advertising for UK businesses on a website that is explicitly UK-focussed and that most of the revenue that Google UK earns is entirely dependent on people in the UK clicking on these adverts. To members of the public this would suggest that the revenue is based on UK activity and should be taxed in the UK.
By reaching this agreement, HMRC appears to accept that the revenue Google UK is generating in the UK can continue to be “booked” in Ireland, where it allocates the profits for tax purposes, rather than UK.
In addition, I write to ask if the NAO will investigate whether the level of cuts that HMRC has been subject to since 2010, and the numbers of specialist staff has impacted on its ability to negotiate fair tax settlements with multinational corporations such as Google.
Yours sincerely,
Seema Malhotra MP
I would have gone further, but I think that's useful request right now that needs to be acted upon, in my opinion.
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Dear Richard,
I am worried that the media attention given to the tax deal is missing the most important point. I see two separate parts to this deal; firstly the £130m settlement for historic matters (about which there is little I can add to what is already being said and done) and secondly, the clear implication (or at least, my inference) that a secret arrangement has been agreed as to how tax will be calculated from here on. I suggest this second part needs to be dug out.
I’m guessing, but I’m a good guesser, that this relates to the Diverted Profits Tax and that HMRC and the taxpayer have agreed to various parameters for determining what is and is not a ‘transaction lacking economic substance’ and an ‘avoided PE’.
I think many would agree that the DPT legislation is mind-numbingly complex and appallingly written so guidance from HMRC on how they intend to interpret and apply it would be very welcome. However, this guidance should be in the public domain; it should not be a secret deal enabling one particular taxpayer to avoid the tax that was named after it.
Absent such transparency, cynics will assume that UK government policy is that the UK corporate tax system should apply in full to most business but should have special mates’ rates for certain multinationals.
This is much more than just a tax-revenue issue. If UK businesses are competing in the UK market with one hand tied behind their back (i.e. they have to pay tax but their multinational competitor does not), they will never have as much to invest in R+D, infrastructure, marketing and promotion and will never be as attractive to investors. One by one they will all be strangled and the corporate tax rules will become largely academic as there will be no-one left to apply them to. The oligopoly will be complete.
Is that really the UK government’s intention?
I have provided suggested PQs on this issue to some MPs
I do think there is a deal and we need to know it
Richard