Google Settles U.K. Tax Probe for $185 Million

European tax authorities have been cracking down on U.S. tech firms who they say have not been paying their fair share of taxes in Europe.
Katie Kuehner-HebertJanuary 25, 2016

Google has agreed to pay the U.K. government $185 million in back taxes and bear a heavier tax burden in the future, the latest move by a U.S. tech firm to settle claims that it does not pay its fair share of taxes in Europe.

The agreement covers taxes from 2005 to 2015 and Google will change how it calculates its tax payments in Britain. In 2013, the U.K government launched a parliamentary inquiry into whether Google was avoiding taxes.

“Google will pay the full tax due in law on profits that belong in the U.K.,”  a spokesperson for HMRC, Britain’s tax authority, said. “Multinational companies must pay the tax that is due and we do not accept less.”

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Google said it would now pay tax based on revenue from U.K.-based advertisers, reflecting “the size and scope of our U.K. business.”

According to ZDNet, Google achieved its tax savings by basing operations for Europe, the Middle East, and Africa in Ireland, which has a corporate tax rate of 12.5%, less than half the 28% rate in the U.K.

“It then reduced its Irish tax liabilities by the employment of the so-called ‘double Irish sandwich’ method of funneling profits through its Ireland-listed company in order to pay a lower tax rate,” ZDNet said.

In April, Britain adopted a so-called Google tax that would impose a levy on any international company that does not fairly pay taxes on profits generated from its British operations.

As the New York Times reports, other European countries, including Germany and France, “have criticized the complicated tax structures tech companies use to reduce their local taxes. Many of them route sales through lower-tax countries like Ireland, even if the sales are made in other nations.

In May, Amazon, which had been funneling most of its sales taxes through Luxembourg, said it would start paying taxes in European countries where it has large operations, and, in December, Apple settled an Italian tax probe for $350 million.

The European Commission is investigating whether Apple and Amazon receive unfair state support through low-tax agreements in Ireland and Luxembourg.