A FORMER Google executive has blown the whistle on a massive and “immoral” tax avoidance scheme that has “cheated” British taxpayers out of hundreds of millions of pounds over the past decade.
Barney Jones, 34, who worked for the internet search giant between 2002 and 2006, has lifted the lid on an elaborate structure which diverts British profits through Ireland to the Bermuda tax haven.
Although Google’s London sales staff would negotiate and sign contracts with British customers, and cash was paid into a UK bank account, deals were technically booked through its Dublin office to minimise its liabilities here. Jones, a devout Christian and father of four, is ready to hand over a cache of more than 100,000 emails and documents to HM Revenue & Customs (HMRC), detailing the “concocted scheme”.
He has already provided testimony to the Commons public accounts committee (PAC) which led to the combative questioning of Matt Brittin, a Google vice-president, last week.
“The real victims are ordinary taxpayers in Britain who are being cheated by Google,” said Jones. “They don’t have the means to hire accountants to pretend they make their money in Ireland, Bermuda or the British Virgin Islands. What Google is doing is immoral.”
The evidence that Jones has shown to The Sunday Times will add fuel to the political firestorm engulfing Google, and threatens to overshadow a meeting between David Cameron and Google’s executive chairman, Eric Schmidt, on Monday.
Last week the Silicon Valley giant was branded “evil”, “devious” and “unethical” by Margaret Hodge, chairwoman of the PAC, over its aggressive accounting tactics.
The row revolves around Google’s use of its European headquarters in Dublin to all but eliminate its tax bill in Britain. Between 2006 and 2011, Google notched up revenues of $18bn (£11.9bn) in Britain, according to American stock market filings. However, by booking all UK sales through Ireland, it handed HMRC only about £10m in corporation tax over the period. It is able to record the revenues in Ireland because the UK company is deemed to drum up new business, with sales staff in Dublin executing all deals.
Jones, who marketed Google’s services to prospective clients, told The Sunday Times that this was not the case. He has decided to blow the whistle on his former employer after hearing what he views as misleading testimony from Brittin, Google’s northern Europe head, to parliament.
Brittin told the PAC last year that “nobody” in Google’s UK office was selling advertising on its website. When he asked to give further evidence last week, he admitted “a lot of the aspects of selling” did take place in London but the deals were “closed” by staff of Google’s Irish subsidiary.
The distinction is crucial because if deals were finalised by London-based staff, Google could be deemed to have made profits on the contracts which would be taxable in Britain, rather than low-tax Ireland. “It uses a concocted scheme to avoid tax. It’s a smoke-screen to distort where the substance of its economic activity is really taking place,” Jones told The Sunday Times.
He said he attended meetings where Google’s London sales staff closed deals, including winning contracts from eBay, the online auction site, Kelkoo, a price comparison website, and Lloyds TSB. He showed The Sunday Times contracts, invoices and correspondence between Google and its customers in Britain. One 2004 contract had the address of Google’s London headquarters next to the heading. Clients would be sold deals by Google staff in London, who were in charge of sending out contracts and receiving signed documents back from clients. In addition, British clients paid money into British bank accounts for Google services.
According to Google’s US accounts, the firm generated sales in Britain of $400m (now £266m) in 2004 and $878m (£579m) in 2005. Yet, Google UK Ltd reported revenues of just £11.1m and £27.1m. “We were making tons of money,” said Jones, who estimates that many of Google’s London sales staff were paid £100,000 a year, mostly in bonuses for landing new contracts.
In 2011, the internet search provider paid just £6m in corporation tax despite its US accounts revealing that its UK turnover was £2.7bn. That year Google’s profit margin was 26%, which, if applied to its British revenue, would produce profits of £676m and a corporation tax bill of more than £180m. Like Google, Apple and Facebook have also based their European headquarters in Ireland, where the corporation tax rate is 12.5%, significantly lower than the UK, currently 23%. However, Google, whose corporate motto is “Don’t be evil”, pays much less by paying massive royalty fees through its overseas subsidiaries to the Bermuda tax haven.
Cameron has vowed to close loopholes and crack down on tax abuses, but he is under growing pressure to axe Schmidt from his panel of senior business advisers which meets at No 10 tomorrow.
Peter Barron, Google’s director of external relations, said: “As we said in front of the public accounts committee, it is difficult to respond fully to documents we have not seen. 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.”
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