Google has struck a tax deal with the UK government involving the payment of £130 million ($185 million) in back taxes since 2005. This deal counters complaints that the search giant, like other major multinationals including Amazon, has avoided paying its fair share of business taxes by booking revenue and profits across borders. However, critics were quick to condemn the deal as “derisory,” pointing out that the announced figure amounted to a tax rate of just 2.77 percent on Google’s UK earnings over the last decade, compared to a standard UK corporation tax rate of 20 percent. Britain’s opposition Labour Party has already called for an investigation.
A Google statement on the deal said: “We will now pay tax based on revenue from UK-based advertisers, which reflects the size and scope of our UK business. The way multinational companies are taxed has been debated for many years and the international tax system is changing as a result. This settlement reflects that shift and is in line with recent OECD guidance.”
The deal might not have attracted so much attention, and criticism, if the UK government hadn’t tried to play politics with it. UK chancellor George Osborne trumpeted the deal as “a major success of our tax policy” at the World Economic Forum in Davos. That kind of claim was a gift to opponents. Prem Sikka, professor of accounting at Essex University, estimated Google’s margins in the UK at around 30 percent for Reuters, and said “this is a lousy number and we need to know more.”
Could Amazon be next in line in the UK? Amazon has certainly been at least as prominent than Google in the headlines for cross-border tax avoidance practices, in the UK and elsewhere. Authors and others have staged highly public boycotts and similar protests over Amazon’s use of international tax arrangements – which, incidentally, are pretty much the norm among MNCs in just about every sector.
I’m not being any more of an Amazon fanboy than usual about this. However, I am impatient with the anti-U.S. hostility, Luddite conservatism, and Little Englanderishness hidden in these critics’ righteous indignation against Google and Amazon. And any of those critics who want to see Amazon humbled are likely to be disappointed by the precedent set by the Google deal. There’s no reason to doubt Google’s statement that the latest UK settlement is in line with OECD guidance. And if that’s so, Amazon might end up paying a paltry c. 3 percent on its UK revenues too. I’m sure that will give Jeff Bezos some sleepless nights. Much.