Google will be paying U.K. authorities £130 million ($185 million) in the form of back taxes. The tax relates to the internet firm’s operations for the past decade and follows the years of investigation by HMRC – a tax agency – into the U.S. firm’s accounting practices in the U.K.
Not all in favor of the deal
The amount applies to future tax policies back to the company’s earnings since 2005 and interest. As per the deal, the U.S. firm is now paying taxes on revenues earned from U.K. advertisers. Prior to this, the search giant was able to avoid taxes by routing the revenue through countries with low tax rates.
Google has its European headquarters in Ireland where the corporate tax rate is less than that of the U.K. The Internet firm also uses its structure in Bermuda where the corporation tax rate is zero to save.
As per the British Treasury, the deal is the “first important victory in the campaign … to ensure companies to pay their fair share of tax on profits made in the UK” as well as “a success for our new tax laws.”
Google’s deal is not welcomed by all. The opposition chancellor John McDonnell, who termed it like a “sweetheart deal,” said the amount agreed “is relatively trivial in comparison with what should have been paid.”
Google did not cheat on taxes
Other big tech firms like Apple and Amazon have also been criticized for using similar methods to lower their tax liability. Using such a method, Google only paid £20.5 million U.K. taxes on revenues of on £3.8 billion in the country in 2013.
What is favor of the U.S. firm is that the HMRC’s investigation did not prove that the company cheated with taxes, and more importantly, the U.K.’s so-called “Google Tax” will not be invoked. This means the U.S. firm will not have to pay any penalties for routing profits through Ireland. Also the Financial Times claims the search giant will be able to use its “double Irish” accounting policies, at least till Ireland closes this loophole.
On Friday, Alphabet shares closed up 2.59% at $745.46. Year to date, the stock is down by over 4%, while in the last year, it is up by almost 38%.