Google might dominate search in the UK, but, according to the Guardian, it avoids paying corporation tax on its advertising revenue here by clever use of its Ireland-based European headquarters.
Accounts for Google UK Limited showed that it took in £1.6 bn in ad revenues last year, and had administrative expenses of £177 m in its London and Manchester offices, including £70m in wages for its 800 employees.
Those costs are recognised for UK tax purposes. However, the ad revenues from the UK are diverted to Google Ireland Limited. Corporation tax in Ireland runs between 10 and 25 per cent, as opposed to 28 and 30 per cent in Britain.
In its accounts, Google UK's prime function is described as "the provision of marketing services to Google Ireland Limited and the provision of research and development services to [US parent company] Google Inc".
According to Google Inc.'s annual report, the UK is the largest market outside its home turf in the US, providing 14 per cent of the company's total revenue.
Known as "transfer pricing," Google's actions are commonplace, and quite legal as long as they have the approval of UK tax authorities.
In response to weekend criticism from Vince Cable, deputy leader of the Liberal Democrats, Google said:
"It would be wrong to think of Google's revenues from UK advertisers as solely the result of operations carried out locally. We invest in R&D, data centres and other infrastructure on a global basis, and that then helps generate revenue in different countries."
The company's motto, you might recall, is "don't be evil."
Article continues below