Google tax deal: Brussels to investigate whether agreement broke EU rules

Critics claim controversial deal means the internet giant is paying an effective 3% rate of tax on its British operations

The £130m Google tax deal faces an investigation by the European Commission into whether the agreement amounted to state aid in breach of EU rules.

Brussels added to the pressure on George Osborne over the internet giant’s payment of a decade of back taxes, which the Chancellor again insisted had been a “major success” for Her Majesty’s Revenue & Customs (HMRC).

Critics claim the deal, which has triggered a bitter political row, means that Google is paying an effective three  per cent rate of tax on its British operations.

Margrethe Vestager, the EU’s competition commissioner, indicated that she was ready to look into complaints that the settlement breached EU rules, prompting an immediate request by the SNP for an inquiry.

She told BBC Radio 4: “If we find there is something to be concerned about, if someone writes to us and says this is maybe not as it should be, then we will take a look.”

Ms Verstager said that so-called “sweetheart deals” for big companies were “unfair” and could amount to illegal state aid.

Formally requesting the investigation, the SNP’s deputy leader Stewart Hosie said it was unclear, because of a lack of transparency, whether the settlement was a fair deal for British taxpayers and complied with rules over state aid.

The Labour MP Margaret Hodge, former chair of the Commons Public Accounts Committee (PAC), said she believed Ms Vestager should “take a look” at the deal. “The whole thing here is that we need greater transparency. If we think it is unfair we lose confidence in the integrity of the tax system,” she said.

Executives from Google and HMRC are to be cross-examined by MPs on the PAC on 11 February as part of an inquiry into tax settlements struck by multinational companies.

Mr Osborne came under fire at the weekend when he claimed that the Google deal, which was ridiculed as “derisory” by Labour, has been a “major success”.

He repeated the claim yesterday, although he told Sky News that he understood the “frustration and anger” people felt over major firms avoiding paying big bills.

“When I became Chancellor, Google paid no tax. Now Google is paying tax and I have introduced a new thing called a diverted profits tax to make sure they pay tax in the future. I regard that as a major success. Is there more to do? Clearly there is. We’ve got to make sure the international rules catch up and we are leading that effort.” Google has defended its controversial deal, insisting it had complied with the law. 

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Margrethe Vestager at the EU headquarters in Brussels on Wednesday (AP)

In a letter to the Financial Times, Peter Barron, Google’s vice president of communications and public affairs, said: “After a six-year audit we are paying the full amount of tax that HM Revenue & Customs agrees we should pay, including £130m in additional  back tax. Governments make tax law, the tax authorities independently enforce the law, and Google complies with the law.”

The European Commission has announced a drive to align tax laws in all 28 member states, to help in the fight against aggressive tax practices by large companies.

Economic affairs commissioner Pierre Moscovici said: “Billions of tax euros are lost every year to tax avoidance – money that could be used for public services like schools and hospitals or to boost jobs and growth.”

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