How the internet giant saves its billions

(BLOOMBERG)

Google has paid no corporation tax in Britain since 2007, even though the country is its most important overseas market, because income from selling advertising on its UK website goes straight to its Irish subsidiary.

Last year, UK advertisers accounted for a little over $3bn (£1.9bn), or 13 per cent, of Google's revenues, and the company employs about 850 people in the country, but its Google UK subsidiary has reported losses for several years.

That is because Google UK is structured so that its business is defined as "the provision of marketing services to Google Ireland Ltd and the provision of research and development services to Google Inc" – services for which it was paid £169m, an increase on 2008 but still not enough to cover all the company's UK expenses.

The latest filing by Google UK at Companies House in London shows that "administrative expenses" rose by £21.6m, eclipsing an increase of £19.8 in revenue and resulting in a loss of £9.7m. The losses were due in part to the increased costs of stock-based compensation, it is understood.

The legality or otherwise of tax-avoidance structures used by multi-national corporations hinges on whether service agreements and other inter-company payments are set at market prices, rather than at artificial rates. Google says it abides by all applicable laws, and has an obligation to its shareholders to limit its global tax bill.

When it was revealed at the end of last year that Google had paid no UK tax, the then deputy leader of the Liberal Democrats, Vince Cable, who is now the Business Secretary, called on the company to pay its "fair share", because not doing so meant higher taxes for other individuals and companies in Britain.

"Avoidance like this is hard to stomach at the best of times, but when the country is in recession, it really sticks in the throat," he said at the time.