If Google Inc. (goog) thought that its peace deal last week with the British government over back taxes was going to be the last word on the matter, it was gravely mistaken.
Tax experts and politicians who have looked at the deal over the weekend are not impressed: they still think that Google is getting away with paying a small fraction of the taxes due on the profits it makes in one of its biggest overseas markets.
The U.K. tax authority HMRC had announced on Friday that Google would make a back payment of 130 million pounds ($190 million) in respect of profits generated in the U.K. over the last 10 years. It also promised to register more of the advertising sales it makes in the U.K., after previously booking the revenues in low-tax Ireland. Treasury chief George Osborne hailed the move as “a really positive step.”
It’s the first notable breakthrough in the U.K.’s efforts to clamp down on multinational companies’ use of offshore tax havens and questionable intra-company pricing arrangements to depress their local tax liabilities. Osborne set out plans for a so-called “Google Tax” in his last budget to squeeze more tax out of companies, many of them Silicon Valley giants.
However, as with many first steps, it’s a small one. Google generated estimated profits of 7.2 billion pounds in the U.K. over the last 10 years, according to The Guardian, but paid only £200 million in corporate profit tax in that period. The standard rate of corporate profit tax is 20%.
John McDonnell, the Mao Zedong-quoting finance spokesman for the opposition Labour Party, called the £130 million settlement “derisory”, while The Financial Times Monday quoted Professsor Prem Sikka, a tax expert at the University of Essex, as saying: “This is a lousy number and we need to know more.” It quoted John Christensen of the Tax Justice Network as calling the deal “not transparent.”
However, it’s further evidence that things are slowly getting tougher for multinationals after decades in which they were able to exploit European tax system ridden with loopholes. Member states have vigorously defended their powers over taxation, meaning that states have been able to undercut each other with sweetheart deals on tax for big companies as they vie for inward investment.
The European Union Commission has already struck down some of the more egregious deals on the basis that they constitute illegal state aid. That has set a menacing precedent for many similar deals, including hundreds negotiated by major U.S. and Asian companies with Luxembourg over the last decades. Competition Commissioner Margrethe Vestager has ordered Starbucks Corp. (sbux) to pay over €20 million ($22 million) back to the Netherlands, and Fiat Chrysler Automobiles Inc. (fcau) to repay a similar amount to Luxembourg. A ruling on Apple Inc.’s (aapl) deal with Ireland is still under review.
Vestager also struck down part of Belgium’s tax code two weeks ago, forcing around 35 multinationals including brewing giant Anheuser Busch-InBev (bud) to repay a total of €700 million in taxes.