Google Inc (NASDAQ:GOOG) has been hit with a £24m tax bill in the UK following an investigation of its offshore structure. The figure relates to US shares given to Google staff in London and billed to the company’s Irish subsidiary, in the process reducing Google’s corporation tax liabilities in the UK.
Google’s employees enjoy big share bonuses now…
Google Inc (NASDAQ:GOOG)’s 2,000 employees in London are given shares each year by the US parent. In 2011, these were worth £51m and £50m in 2012. The cost is then billed to Google’s European HQ in Dublin. The result was Google paid just £11.6m in corporation tax in the UK for 2012 despite a turnover of £3.1bn and profits of £889m – a figure that theoretically should have netted £213m for the UK exchequer.
…but will the corporations have to pay later?
It seems likely that the move will lead to similar action against Apple Inc. (NASDAQ:AAPL), Facebook Inc (NASDAQ:FB) and Amazon.com, Inc. (NASDAQ:AMZN), who are all being scrutinized for counting shares as a tax-deductible expense. Apple, for example, had an estimated UK revenue of £9.5bn in 2012, paid out £45m in shares to staff, yet paid no corporation tax whatsoever. Neither did Facebook despite £307m of UK revenue. It also paid £4.7m in shares to staff in the form of bonuses. Out of the three companies, only Amazon paid any corporation tax at all. Even then, that was just £2.4m on revenues of £3.7bn. Staff there were given £14.5m in shares.
Taxing times ahead for the big corps
The move has come as a result of a review of tax guidelines at the HMRC (Her Majesty’s Revenue & Customs). As a result, Google Inc (NASDAQ:GOOG)’s UK subsidiary is now required to count shares as a revenue rather than a cost. The review came about after a former Google employee, Barney Jones, told newspapers that the company booked its UK sales through Ireland even though the deals were closed in London.
All four corporations have set up intricate global structures involving low tax regimes and offshore havens to allow them to legally reduce their tax bill.
While Amazon.com, Inc. (NASDAQ:AMZN) refused to comment, Facebook Inc (NASDAQ:FB) and Apple Inc. (NASDAQ:AAPL) said they paid all taxes required by UK law. A spokesperson for Google said:
‘This is a matter the company is discussing with HMRC in an ongoing review initiated in 2010. The company has made provision of £24m for potential corporation tax for the years under review (2005-2011).’
It’s understood that Google Inc (NASDAQ:GOOG) will make the payment this year.
More to come
The move is worrying for management, shareholders and investors in the big tech companies, as it clearly sets a precedent for other countries to act on aggressive tax positions held by these organizations. No doubt, we will see similar moves in other countries as the crackdown on the ‘double Irish’ begins in earnest. If this is the case, then these four big corporations won’t be the only ones seeing tax bills in the years to come that could impact on their share price, as well as their balance sheet.