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When you think of tax evaders, you probably think of greedy industrialists, billionaire financiers, criminal masterminds and despised multinational corporations.

You probably don't think of Google, a company which has made it a point to 'do no evil' and spends considerable sums on wholesome pet projects and philanthropic ventures.

But according to The Sunday Times, despite the praise lavished upon it by British politicians, the company intentionally avoids paying £100m in taxes each year by collecting ad payments through an Irish subsidiary instead of its British subsidiary, Google UK Ltd.

The Times employed the services of an accountant, Richard Murphy, to review the search engine giant's accounts. He found that in 2007, Google paid only £600,000 in corporate tax in the UK despite the fact that the company generated over £1.25bn in revenues in the UK. According to The Times:

More than 90% of Google’s UK revenues are channelled through Ireland, where corporation tax is levied at 12.5%, compared with 28% in Britain.

But it apparently goes beyond that:

Google avoided a further €135m (now £119m) in tax from Ireland during 2007. The search engine’s Irish subsidiary is owned by one of two companies Google has set up in the tax haven of Bermuda.

Needless to say, this has upset some politicians. One Labour MP, Austin Mitchell, call what Google is doing "unfair".

But 'unfair' doesn't necessarily mean 'illegal'. Google issued a statement reiterating that the company "complies fully with the tax requirements in all the countries in which we operate", although it didn't provide much in the way of an explanation of its chosen corporate structure.

According to Murphy, Google is not violating the law but he does note that HM Revenue & Customs could challenge the company. He suggests that the tax collector "could say Google is operating a branch in the UK and tax it on its UK turnover here".

Of course, this is not a cut and dry issue and I'm no accountant or attorney. The idea that companies should pay their fair share is a good one and Google's business structure does look a little bit dubious on the surface. But the truth is that many companies with global footprints have complicated corporate structures and operate in ways that are designed to be in the best interests of their most important constituency: their shareholders. That's technically what they're supposed to do.

While a valid argument can be made that companies have a higher moral obligation to support the 'public good' in countries in which they operate, there's also a part of me that can't help but think that there are a lot of people who are just as upset about how taxes are spent as they are about tax avoidance. Both issues are worthy of public discussion given the economic situation, and you can be sure that there is going to be lots of public discussion and debate over internet-related tax issues in lots of places.

Photo credit: dr_ranch via Flickr.

Patricio Robles

Published 20 April, 2009 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

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Jake Brumby

Every individual and every business takes steps to reduce their tax burden. Nobody likes tax, so it should be expected that Google tries to minimise their tax.

What Google is doing is called tax avoidance. It is not tax evasion as your opening paragraph suggests. Tax avoidance is legal, tax evasion is illegal.

over 7 years ago

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