Entertainment

Google's Got A Tax Problem In The UK

By Michael Mayday , May 20, 2013 09:16 AM EDT

Google is in hot water with UK politicians after a former Google executive came forward claiming the Internet search giant has illegally dodged taxes in the country.

Google, like many international corporations, uses a legal, though suspect, tax avoidance scheme to dodge paying on higher taxes in some countries like the UK. The technique is called the Double Irish with a Dutch Sandwich, and uses a system of subsidiary companies in Ireland and the Netherlands in order to funnel money and pay the lowest amount of corporate taxes possible.

The problem Google has, however, is that while the company allegedly said it negotiated and finished ad deals for the UK market in Ireland, where the tax rate is 12.5 percent, they really finished such deals in London, England, where the tax rate is 23 percent. Finishing deals in the UK would require Google to pay UK tax rates, and they didn't.

And according to The Sunday Times former Google executive Barney Jones allegedly has over 100,000 emails apparently proving the company's fraud. UK officials would like to take a look at those documents.

Especially one Margaret Hodge, chair of the Public Accounts Committee (PAC). Hodge grilled Google Vice President Matt Brittin last week, saying that she believes Google does evil by allegedly lying about its taxes.

Google, for its part, says the Internet giant has done nothing wrong, and hasn't violated UK tax laws.

"As we said in front of the public accounts committee, it is difficult to respond fully to documents we have not seen," Google said in a statement responding to the accusation. "These questions relate to Google's business in the UK going back a decade or more. None of the allegations put to us change the fact that Google pays the corporate tax due on its UK activities and complies fully with UK law."

Google isn't the only major Internet corporation in the hot seat. Amazon, too, is having to answer to UK politicians for a very similar scheme. The Internet retailer says it finishes its deals in Luxembourg, but whistleblowers say it, like Google, finishes deals in London.

So what will the UK government do if it's proven that these companies did violate UK tax code? Likely not much. As V3's Madeline Bennett explains, Google and Amazon, and other similar companies, are a solid source for jobs. They also help the country to rapidly expand its technology offerings and broadband speeds.

"For all of Hodge's bluster, David Cameron and Co. will want to keep these firms in the UK, not only for the jobs they bring with them, but for the ‘cool' factor the government believes they bring the country," Bennett said.

It remains to be seen if the cool factor is enough to compensate the UK.

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