Once might be unfortunate. But twice?

As I’ve made the point on twitter:

let me spell it out here.

I’ve traced Google UK Limited’s accounts back to 2008. The first sign of trouble comes in 2012 where we see for the first time a provision for underpaid corporation tax:



in respect of employee share based compensation. We can reasonably assume a deduction had wrongly been taken for tax purposes. Call this the First Dispute. And there is a corresponding interest charge to reflect the fact that at least some of this additional tax has been owed for some time:


In 2013, there’s then a new and separate provision “in respect of additional corporation taxes”:


You’ll notice that it occupies a separate line in the accounts to the £24,069,879 figure carried over from 2012 and has a separate description. Call this the Second Dispute.

And there’s also a further interest charge.


which is said to relate to the First Dispute.

Now roll the clock forward to the (as yet unpublished – but I have a copy) accounts for the period ending 30 June 2015. You can see a substantial additional provision to that recorded in the accounts for the period ending 31.12.13:


Although the accounts for the period ending 30 June 2015 don’t explicitly record that the provision is for the Second Dispute, the fact that it is compared with the prior period £1,153,785 (which obviously was for the Second Dispute) strongly suggests that some or all of it relates to that dispute.

As I indicated here, there is also in the accounts for the period ending 30.6.15 a further provision for interest of £13.6m. If you assume that some or all of the £69m related to the Second Dispute the amount of this interest charge would suggest that the Second Dispute, too, is of venerable age. And from the timing of the provision you can see that either HMRC uncovered – or Google conceded – the point late in the day.

So. Two longstanding disputes as to Google UK Limited’s UK corporation tax bill. Both involving tens of millions of pounds of underpaid tax.

One might be unfortunate. But, two?

10 thoughts on “Once might be unfortunate. But twice?

  1. Sorry, perhaps I am being obtuse, but are you saying that some of the £130m settlement relates to the denial of a deduction for the cost of share-based payments (provision of c.£24m), and part to interest on late-paid tax (how much? about £30m?)?

    So how much additional corporation tax is payable as a result of increased profits being attributed to the UK entity?

  2. Yes. And I don’t believe we know. From the accounts it could even be none.

  3. I’m not so sure G has the record or is even that unfortunate.
    Look at a company like Glaxo Smith Kline. Not only have they ended up paying billions, they’ve even had simultaneously to take on the IRS, Inland Revene and maybe a few other fiscs.
    G not even in the same ballpark!

  4. It’s a business with two captive customers selling at a fixed price. Not quite sure it’s analogous to Glaxo.

  5. Google like GSK has many third party customers. I think Iain is referring to GSK’s transfer pricing cases, from which it appeared that one group company was selling drugs to another at much more (perhaps 5 to 10 times) the market price for a generic product. That is, a deal with captive customers. Part of the uplift may be justified by commerical factors (branded product, IP, etc) but perhaps not that much. A little like Starbucks’ “special” coffee beans.

    Most large companies or corporate groups will expect to have several open periods at any time, while tax authorities check various aspects of their tax returns. And if the company reaches the view that an amount is likely to be paid (which they can estimate with reasonable accuracy) then the accountants will require them to show a provision. Not all that remarkable.

    More interesting would be understanding what the £130m settlement actually relates to.

  6. Actually Google UK Limited has two customers, both members of the Google Group. It charges (we believe) cost plus to each of those customers. I do think it is telling that from such a simple business model it has managed to generate two distinct disputes each involving underpayments of tens of millions of pounds of corporation tax. It speaks to quite how fiscally aggressively it operates that simple business model.

  7. I think that share-based payments and transfer pricing are two of the more complex areas of corporate taxation, so it’s not terribly surprising to have both of them under dispute. All it says is that they have a complex commercial situation – which, with cross-border intercompany transactions, is what you would expect.

    In fact, only having two major areas under enquiry is quite good going for a large business. What about cross-border VAT, PAYE on internationally mobile employees, thin capitalisation, capital allowance claims, and so forth?

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  9. HMRC’s recently published “factsheet” is intriguing. https://www.gov.uk/government/news/factsheet-on-hmrc-and-multinational-corporations

    It refers to “The current tax charge that Google took in its accounts increased significantly from 2012, when the company first disclosed that it was under enquiry and made a provision for additional tax.” This links the settlement directly to the issue of share based compensation (deductibility, presumably) not the proper measure Google UK’s income at all.

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