Treasury Committee launches tax inquiry in wake of Google controversy

The Treasury Committee has launched an inquiry into UK tax policy in the wake of the widespread dissatisfaction with HM Revenue & Customs's controversial tax deal with Google.

Among various terms of inquiry, the influential parliamentary committee will investigate whether the government should address the problem of the shrinking corporate tax base through radical changes, or perhaps even carry out a wholesale review of capital taxation.

On Friday it emerged that HMRC had shaken hands on an agreement that Google should pay £130m for additional taxes owed over 10 years, enabling the Silicon Valley giant to continue using its current tax structure where it books advertising deals with UK clients through its international headquarters in Ireland but routes sales them through Amsterdam to Bermuda where the profits are not taxed.

Chancellor George Osborne called the deal a "major success" and finance secretary to the Treasury David Gauke said in the commons on Monday that it was "solid evidence" that UK rules have strengthened.

Other giant US corporations are reportedly close to agreeing their own deals, with HM Revenue & Customs insiders confirming to the Sunday Times that Amazon, Facebook, Microsoft and McDonald's are all close to UK back tax agreements.

There has been much criticism of the HMRC's deals, with some tax experts calculating Google, for example, had avoided around £1.6bn in taxes since 2005, despite earning 10% of its global revenues in the UK.

In an announcement on Monday, Treasury Committee chairman Andrew Tyrie said: “The complexity of tax law is turning what should be a straightforward principle – that everybody should pay the correct amount of tax – in to a piece of elastic. For corporation tax, for instance, the problem is exacerbated by the globalisation of economic activity and any liability to tax that accompanies it.

The investigation, entitled 'Shifting Sands: An Inquiry in to UK tax policy and the tax base', will examine how tax policy is made, how tax collection is administered and how to address the vulnerability of the tax base.

“A corporation’s duty to shareholders will be to minimise its tax liability," Tyrie added. "It should be the duty of those making tax policy to find better ways to limit the elasticity. Google may be the symptom, but it is not the cause.

“There is a lot the government could be doing. Tax policy must be made more practicable and the tax system more coherent. Tax needs to be fair. It needs to provide more certainty and stability. There is a lot to do and a lot for the Committee to examine.”

Shadow Chancellor John McDonnell described the Google agreement as a "sweetheart deal" and has asked for a full report by the HMRC.

Google said it was a fair deal and that it complied with all tax rules. HMRC said the deal meant Google "will pay the full tax due in law".

The HMRC said in the future it will adopt a “new approach” to how it calculates its corporation tax bill.