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Google hairsplitting on U.K. tax obligations

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Google looks too clever on British tax. Quizzed by parliamentarians last year, the tech giant defended its low tax U.K. bills, saying deals are actually struck in lower-tax Ireland. Yet a Reuters investigation suggests London is actually a sales hub. Google distinguishes between U.K. staff who encourage sales and Irish employees who execute deals. That hairsplitting won't impress politicians or newspapers. Rightly so.

Reuters says the company made $18-billion (U.S.) in U.K. revenue between 2006 and 2011. At the average profit margin and tax rate, that would have generated a tax bill of around $1-billion, but it actually paid less than 2 per cent of that: $16-million.

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An executive testified this mismatch was because nobody actually sold in Britain. Yet Reuters found customers, alumni, job adverts and 150-odd Linkedin profiles suggesting otherwise. Google says its evidence to the U.K. parliament was truthful and accurate in setting out how U.K. staff supported salespeople in Ireland.

If MPs reject the distinction between selling and sales support, Britain's sleepy taxman could ultimately be prodded into seeking back payments and levying bigger future bills. France already reportedly wants €1.7-billion ($2.2-billion U.S.) of back taxes for similar reasons.

The sums could be material for a company which set aside $2.6-billion for tax last year. And the hoo-hah might encourage other countries to examine Google more closely. It is already in Australia's sights.

Even a legally convincing rebuttal may not prevent reputational damage. Consumers might find boycotting Starbucks cafes easier than avoiding Google search, YouTube, Chrome and Gmail. But image is important and after earlier upsets such as harvesting personal data while mapping cities, Google looks ever less like a cool upstart and more like a clumsy, capricious behemoth.

Eric Schmidt, Google's chairman, boasted recently to Bloomberg that Google was "proudly capitalistic" and he defended routing money through low-tax Bermuda, Ireland and the Netherlands. Such comments are tin-eared.

With public and household finances creaking, patience is wearing thin with elaborate cross-border tax deals. Ask Starbucks, British comedian Jimmy Carr or many holders of formerly secret Swiss bank accounts. The U.K., Germany and Australia are already pushing the G20 for tighter tax rules fit for the Internet age.

At flotation, Google's mantra was "don't be evil." For tax in 2013, "don't be underhand" might be better.

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