Oral evidence: Corporate tax deals, HC 788

Oral evidence, 11 February 2016.

Witnesses

Matt Brittin, Google Europe, Middle East and Africa (EMEA) and Tom Hutchinson, VP Finance, Google Inc., gave evidence.

Chair

Welcome to the Public Accounts Committee on Thursday 11 February 2016. We are here with our first witnesses today to talk about the recent tax settlements that Google UK announced a few weeks ago. We welcome back Mr Brittin, the president of Google Europe, Middle East and Africa. You have had a promotion since you appeared before us a couple of years ago. I also welcome Mr Tom Hutchinson, the vice-president for finance at Google Inc., which is the overarching Google corporation. Mr Brittin, it might be helpful to start by setting out the facts. Can you confirm that your revenues in the UK in the last 18 months were £1.18 billion?

Matt Brittin

That’s correct.

Chair

And your profit in the UK in the same period was £106 million?

Matt Brittin

That’s correct.

Chair

I think I am right in saying that 11% of your global profit is generated in the United Kingdom.

Matt Brittin

No, that’s incorrect. That is sales to customers in the UK.

Chair

Okay. Globally, Alphabet, the parent company of Google Inc., is the biggest-value company in the world.

Matt Brittin

It depends on the share price of any given day of the week.

Chair

But that has been the case in this last week or two?

Matt Brittin

At one point it was correct, yes.

Chair

You and Apple are up there vying for that. Can you confirm reports that your chief executive was paid £138 million—$199 million—last year?

Matt Brittin

I don’t have the exact figure in front of me. In the last few days, new stock-based compensation was announced by a recently appointed chief executive. That is an amount that is based on stock. The value of the stock depends on the performance in the future and it vests over multiple years.

Chair

Well, it is a lot of money.

Matt Brittin

That’s true.

Chair

Your tax settlement with HMRC that you announced a couple of weeks ago, which covered a 10-year period, was £130 million.

Matt Brittin

That’s correct.

Chair

We will get into what that involves later. Mr Brittin, we are here for the taxpayers in Britain. Do you hear the anger and frustration out there, because, with those huge figures, you settled for a figure of £130 million?

Matt Brittin

Absolutely, and I welcome the chance to come and talk to you about this. I understand the anger and—

Chair

Do you really understand the anger, Mr Brittin? What do you get paid, Mr Brittin?

Matt Brittin

If that is relevant, I will happily disclose that to the Committee. What I understand is—

Chair

I am asking you what you get paid.

Matt Brittin

I will happily disclose that, if that’s a relevant matter for the Committee, in private.

Chair

I am asking you, so it is a relevant matter. Could you tell me what you get paid?

Matt Brittin

I don’t have the figure, but I will happily provide it.

Chair

You don’t know what you get paid, Mr Brittin?

Matt Brittin

Well, Chair, let me—

Chair

Perhaps you could give us a ballpark figure for what you get paid. Forget the share options, then; what’s your basic salary?

Matt Brittin

I don’t have the figure, but I’ll provide a figure privately if it’s relevant to the Committee to understand my salary. I would like to say—

Chair

Okay, you don’t know what you get paid. My point is that out there: taxpayers—our constituents—are very angry.

Matt Brittin

I understand that.

Chair

They live in a different world, clearly, to the world that you live in if you can’t even tell us what you are actually paid. I wonder if you’ve got tin ears and you can’t hear this. You went out there publicly to parade this tax deal, and you can’t—

Matt Brittin

I’d love to mention what I was trying to say earlier, which is that I understand the anger and I understand that people, when they see reported things like we’re paying 3% tax, would be angry. We’re not, we’re paying 20% tax.

Chair

But Mr Brittin, you publicly went out with this tax deal. You announced it to the world—the £130 million—as a great deal.

Matt Brittin

Can I be clear? We announced the settlement of a process that HMRC began six years ago, where they addressed many of the questions that the Committee has raised with us previously about the substance of our operations and our tax affairs.

Chair

We’re going to get into that. Can I just be clear? We do need questions and answers in this. You chose to publicly declare the outcome of the deal, yes?

Matt Brittin

Well, the outcome of the settlement of the process was going to be filed in our accounts and therefore was going to become public, and we alerted you, and we alerted the Treasury and the Opposition, that this was going to become public, given the intense interest there had been in multinational affairs and in our affairs as well. Yes, that’s true.

Chair

But you went out and told people, and told the media, that this was going to be coming. You did that before it was published information. You chose to—

Matt Brittin

At the time it was published, because of the interest and the scrutiny that we’ve had.

Chair

I have to say it seems a bit of a PR disaster, frankly, if you didn’t have the nous to realise this. In the same week as taxpayers were filing their own tax returns, sweating over the little bit of bank interest and sweating about getting it in on time, you announce this as a good deal. Why did you do it that way?

Matt Brittin

Chair, we announced it because the settlement was being published in our accounts. It was the conclusion of a six-year rigorous independent tax audit, in which we were paying tax at 20%, like every other UK company. The questions that you have asked us in the past about the substance of our activities were answered in detail by a fully transparent process, which HMRC conducted, and we were required to pay more tax as a result of that process, in proportion to the economic activity of Google in the UK. Those are the rules being applied to the facts as they find them.

Chair

Let me go back to the figures. On £1.18 billion of revenues and £106 million of profit, you paid £130 million over 10 years.

Matt Brittin

We’re paying tax at 20% on the activities in the UK. Can I remind you that the beginning of the 10-year period, which was 2005, Google had about 160 employees in the UK? We’ve invested heavily in recruiting; we now have over 4,000.

Chair

We’re going to go into your establishment in the UK in a moment. Could you answer the questions? Of this £130 million, how much was tax and how much was interest on that tax?

Matt Brittin

Tom is our global head of tax affairs, so he can answer.

Chair

Mr Hutchinson, could you answer that question, please? Of that £130 million, how much was tax and how much was interest?

Tom Hutchinson

£18 million of that was interest; the rest was tax.

Chair

Which is great—most people would get a tough interest deal from HMRC. But let me just go back to your establishment in the UK. You have a big market in the UK, which you acknowledge.

Matt Brittin

As I said earlier, 10% of global sales come from sales to UK customers.

Chair

How many staff are currently based here? Lots of figures are being bandied around.

Matt Brittin

We have over 4,000 staff if you include directly employed and contracted staff working for our UK operation now.

Chair

You are building this new headquarters at King’s Cross, which has had a bit of publicity. Can you tell us how much that is costing you?

Matt Brittin

When we announced it, I think the figure in total for acquisition of the site and the building is about £1 billion.

Chair

How many staff will be based there?

Matt Brittin

I don’t remember the full capacity, but we hope to continue to grow. Just to give you an indication, since we first appeared in front of the Committee, we have hired about 1,000 more people in the UK. My hope is we will continue to hire more people, and that will obviously generate more profits and taxes in the UK.

Chair

Yet you maintain that Ireland is where your European operation is based, and—

Matt Brittin

That is true. We have well over 5,000 people working in Ireland. We have a data centre. We are building another data centre there as well. And people in Ireland serve not just customers and businesses in the UK, but across Europe, the middle east and Africa. We have people speaking 40 languages there. HMRC visited Ireland and understood their activities.

Chair

Which we know from previous hearings. Just to be clear, we have, obviously, gone through previous transcripts. Members of the Committee who weren’t on it before are aware of that.

Matt Brittin

I’m just making sure that you’re clear. We should be clear: the way we operate is to have a—

Chair

Mr Brittin, I know the way you operate. Can I just ask some questions, then we will get into more details about that? Your UK operation is 10% of your business.

Matt Brittin

10% of sales are to UK customers. That is correct.

Chair

Right, and yet your UK profits generate a fraction of your overall tax bill.

Matt Brittin

Yes, it is important to understand this—and I think the Committee raised this last time. You wrote a Report after we appeared last time suggesting two things: first, we should look at our tax structures, which is what HMRC has done, and secondly, that we should pay tax proportionate to our UK sales. If those were the rules, that’s what we would do, but those are not the rules. The rules are that you should pay taxes on the profit on the economic activity. This is at the heart of what HMRC looked at, and Tom can explain more. On the application of the complex tax rules, which are 17,000-plus pages long in the UK, they spent six years understanding exactly what we do. You asked me when I appeared previously what people do in the UK and what people do in Ireland. They interviewed our staff here and our staff in Ireland. They looked at the systems and processes and all the legal contracts and they applied the laws to the facts.

Chair

But Mr Brittin, you do remember, of course, that we called you back in 2013 because what you had told us in 2012 did not chime with what we then learned about how deals were sealed. I don’t want to revisit all that right at this moment.

Matt Brittin

Can I just clarify this, because you are making an important point there about our consistency?

Chair

I will be generous on this one occasion and let you clarify that, then I will go to Mr Stewart Jackson.

Matt Brittin

Certainly. I explained to the Committee the details of how we operate based on our current operations. You asked us further questions based on how we were established in 2002-03, which is before I started at Google, so I was unaware. All the questions that you asked us and the evidence that was based on, as I understand it, was passed to HMRC, who considered it as part of their six-year tax audit. So all those questions have been looked at.

Chair

We are going to be talking to HMRC shortly, but frankly, you are already taxing my patience and the patience of the hard-working taxpayer out there.

Mr Jackson

Mr Brittin, you were a very convincing witness in 2012, but let’s remember that the National Audit Office has told us that they were not able to demonstrably prove that the evidence you gave in 2012 was not materially inaccurate. I would draw your attention in particular to evidence that subsequently appeared after the 2012 hearing which showed that UK staff carried out the substance of work leading to contracts with major UK clients, and that there was evidence around payslips showing sales-related bonus payments. That is something that you did not admit in the course of very rigorous and robust questioning in 2012.

Matt Brittin

I am not sure what period you are referring to.

Mr Jackson

My point is that you will forgive us if we are slightly less than convinced by your evidence.

Matt Brittin

For HMRC in their six-year process, we provided full transparency so that they could see details of contracts, interview staff, interview customers, understand how our systems work and address all those questions that you raise, including the payment of commission and what exactly staff were doing in all aspects of the process. Tom can explain more about how they looked at that detail, because it was extremely rigorous and we provided full transparency to them. I should mention at this point, just in the interest of being fully transparent, that HMRC asked us for permission to divulge more information than they would normally in respect of the hearing later today, and we have given them that permission. That does give rise to two further amounts of tax that we have paid outside the audit period, but I would like Tom to clarify that for you so you are aware of it.

Mr Jackson

Let me stick with you, because I am questioning you on this occasion. Your article that I read in The Telegraph is slightly cheeky to say the least. You pose as an enlightened helper to the public debate, facilitating this debate as if you are some kind of disinterested observer, and that the wicked, awful tax system across the world has somehow just happened to Google, whereas actually, you have made a choice to avoid tax and you have set up structures specifically so to do. I just think that there is an element here of, “We’re doing the UK taxpayer a favour by paying tax.” That is what it feels like in your article in The Telegraph. Take this one paragraph, for instance: “Some have suggested the settlement which concluded the audit was a ‘sweetheart deal’, a cut-price tax rate. It was not. Google pays corporation tax on its UK profit at the standard rate”—nearly 20%, etc. But the fact is, quite frankly, that if I had not disclosed over the period of 2005 to 2015 all the circumstances of my income, I, as an individual, would be in a lot of trouble with HMRC. Why are you different?

Matt Brittin

Let me explain. At any one time I understand over two thirds of the large companies in the UK are going under some kind of a review from HMRC, so it is normal for large corporations to receive that kind of scrutiny. That for us began a process that lasted six years, of drilling into the detail of our operation. Part of that was to try to understand the nature of internet businesses. Many internet businesses have been scrutinised in terms of multinational taxes. Maybe I should explain a little bit more about the detail of your question.

Mr Jackson

No, let me come back to you. Why didn’t you mention Bermuda in this article? That seems to be an integral part of your business model vis-à-vis your tax obligation.

Matt Brittin

Bermuda has no impact on the tax that we pay in the UK. Having a tax expert here, it might be helpful to hear from him about that, because I know it sounds strange to UK ears, but it is actually a commonplace arrangement for American companies—

Mr Jackson

What happens in Bermuda, then?

Matt Brittin

It is a commonplace arrangement for American companies, and Tom can explain, because he is our global head of tax.

Mr Jackson

Okay, well before we get on to—

Matt Brittin

If you would like to hear the answer, he would be the person to answer it.

Mr Jackson

No, I will decide who I ask questions; thank you very much for the guidance. Where is the value created in your business?

Matt Brittin

That is at the heart of how corporation tax works—the question of where value is created. If you are a company in the UK selling cosmetics you might go to an event that Google runs, saying “Here’s how to use our services”. You might speak to somebody in Dublin who can guide you in using our services; but the value for you is created when somebody in Japan searches on their phone for cosmetics and connects with you, and you sell cosmetics. If you think about that, most of the value is created by the product search, which is developed and built in the US. Some of the value is created by the marketing person and the activity that has alerted you to this opportunity, some by the person in Dublin who guides you, but most of the value is created by the search, and that was something which was founded and created in the US—20,000 engineers-plus in the US and 1,000 in the UK. I would like that 1,000 to be bigger and bigger, and as that gets bigger the proportion of our profits that we earn in the UK will become bigger, but the rules require you to pay your taxes based on the economic value creation. We paid £3.3 billion taxes last year—an average rate of around 20% over the last few years, the same as the rate of tax in the UK. So that’s how the corporation tax system works and we pay where the value is created.

Mr Jackson

I understand that. A specific question, going forward, because I am not an unfair person. Incidentally, I have to say your press release was the dead cat strategy. You knew that releasing that press release about the £130 million would put the heat on the Treasury and the Chancellor and others, and take the heat off the substantive issue, which is your tax avoidance.

Matt Brittin

To be clear, I have appeared before this Committee twice and been as thorough as we can do in answering your questions. We spent six years being transparent, fully, with the Government’s independent tax authority asking detailed questions.

Chair

Mr Brittin, if you have released so much why won’t you release more information about this tax arrangement, so British taxpayers can see this—

Matt Brittin

We are here to answer all of your questions about the process, the questions and the issue.

Mr Jackson

Can I specifically come back to the diverted profits tax regime, which came in last year? I was going on to say, in fairness, you have intimated in your press release that things have changed now—that you have accepted a more robust tax regime. Does that mean you are fully cognisant of the diverted tax regime and that you will be caught by that, and therefore are willing to pay the proper amount in a timely way, going forward?

Tom Hutchinson

Can I answer that question? The diverted profit tax was a system that was set up—a separate tax system, basically. If you are not paying the right amount of tax under the normal tax system, that’s when it kicks in. Because of our settlement, as Matt described—the settlement with HMRC—we are paying the right amount of taxes, so therefore we are not paying any additional taxes for DPT.

Mr Jackson

At least for back taxes. I am talking about going forward, not back taxes. This is a deal you have made because for whatever reason, which we may get to the bottom of by the conclusion of this Committee, you chose not to pay, in the period between 2005 and 2015, the proper amount of tax to the Treasury. I am talking about going forward. Are you going to be caught by the diverted tax regime going forward?

Tom Hutchinson

Again, let me just explain some of the details. It was only for one quarter of that settlement—so a very small part of that settlement—where the DPT came into effect, and the conclusion was it did not apply to us. Going forward, if we are paying the right amount of tax according to the normal rules in the UK then DPT would not apply, again. The DPT is making sure you are paying the right amount of taxes based on the existing system.

Mr Jackson

But what has changed about your business model? What has changed since 2012? You are still using this model—this interaction between creation of value, and a debate about creation of value between the UK, Ireland and Bermuda, which is commonplace, as you say, among big companies. What has changed that will make you pay more tax, effectively, and go to the heart of the Chair’s point that there is a massive discrepancy between your sales and your profit that’s declared, and what you’re actually paying in tax?

Tom Hutchinson

That’s right. As Matt described, the way the tax system works—the corporate tax system, the income tax system—is that it taxes you based on the value of your activities. So, a lot of the value that is attributable to the profits from UK customers is value created outside of the UK. It’s relating to the technology that’s been developed outside the UK. You look at the value of the substance or the services provided in the UK, and you look at comparables. What would you pay a third party to provide those same services? And that’s what we did in doing our tax returns. We were audited, as you know, by HMRC. They came back and argued that it should be a higher amount, and that’s the amount we ended up paying and settling for at the end.

Mr Jackson

Okay. The Comptroller and Auditor General will come in in a minute, but I will ask a final question. It has been reported that you’ve had some pretty involved discussions with the tax regimes of Italy and France. Can you tell us a bit about that?

Tom Hutchinson

As a large company—Google is obviously a very large company—tax audits are very commonplace. All large companies are going through audits. I’m not going to comment on some of the press reports; there are a lot of rumours out there in those articles. We will wait and see how those turn out; it’s just hard to say.

Mr Jackson

Will you confirm that the sales and profits in those jurisdictions—France and Italy—are substantially lower than they are in the United Kingdom?

Tom Hutchinson

Again, I will say that we look at those activities just like we do—

Mr Jackson

Answer the question: are they smaller as a proportion of Google’s worldwide income, sales and profits in France and Italy than they are in the UK?

Matt Brittin

Sales to customers in the UK are 10% of Google’s sales, and that’s the highest percentage of sales for any country outside the US. Obviously, taxes are paid on profits on economic activity and not in proportion to sales in each country, so that’s a different matter, because that’s how corporation tax works.

Mr Jackson

I understand that, but then why are you being asked to pay substantially more—hundreds of millions of euros or dollars—

Matt Brittin

Just like in the UK, there have been a whole range of statements that are based on what people—politicians and others—might like to see large companies pay, but they are not related to a tax demand or an audit. They are just statements by politicians asking us to pay more money—politicians in many cases who, like the Committee, would like to see a system where taxes are paid in proportion to sales, and that’s not the system that we have to deal with.

Mr Jackson

Just for the benefit of the Committee, are you specifically refuting the quoted figures that those tax jurisdictions say they are going to ask you to pay? My final, final question is: what stage are you at in terms of your negotiation with the French and Italian tax authorities then?

Tom Hutchinson

What I am saying is that we’re not confirming those rumours of what’s happening. Those are articles that are not based on facts. But I can say, the information that I can provide is that we have never paid, as part of an audit settlement outside the US, a larger settlement than the one we just agreed to.

Chair

Mr Brittin, you were just very rude about politicians, if I may say so.

Matt Brittin

I do apologise.

Chair

Let me be really clear why we are here: we’re here representing our constituents—taxpayers. Okay? You’re a British citizen; you’re a British taxpayer. So don’t you feel a bit embarrassed by the fact that you don’t even know what you’re paid? You’re living on a different planet to most of our constituents, frankly.

Matt Brittin

I am proud to be British. I appear here because I believe in the process of democracy, and the concerns of your constituents. As I said earlier, I understand why constituents are concerned when they see reports that we are paying 3% tax. It’s just not true. We are paying 20% tax on every business—

Chair

It’s not so much the percentage, actually; it’s the £130 million. As one Minister said, it isn’t an awful lot of money.

Matt Brittin

Chair, just to come back on that, I think that one of the key topics here—in the past and today—is, shouldn’t we pay taxes proportionate to our sales in the UK? And I understand that. But that’s not the system as we find it.

Chair

But Google Inc.—Alphabet—chooses to set up your tax affairs in a particular way. You don’t have to have—You came here the first time and said, “Well, I can have a tax haven in Bermuda, so we do.” My point is that you don’t have to set up your tax affairs this way; you choose to do that. That is your choice, as well as what the law says. I will bring in Sir Amyas Morse, the Comptroller and Auditor General, who’s been waiting.

Sir Amyas Morse

Just a factual point. Comparing your geographic accounts, admittedly between 2013 and your 18-month period of 2015, your total charges applied against UK profits going into the group have gone from £642 million to £1.178 billion. That is your charges reducing your declared profit in the UK. Now, even when I adjust for the fact that is an 18-month period—even when I adjust downwards for that, which of course in fairness I must do, it is still an increase in rated charge of about 50%. Now, I don’t doubt that there are some business reasons that go behind that; otherwise, you wouldn’t have got it past HMRC, but none the less, effectively the money shot is how much you charge against your UK turnover, because that is the amount of money that is going off into your international group—right? So while we are having all this discussion, what’s actually happening is that the rate of offtake from UK-declared tax is going up and up. Isn’t that right?

Tom Hutchinson

You mentioned a few figures there; I’m not sure I followed them. The figure that you mentioned, the £1.178 billion, that is the amount of revenue to our UK entity. So it is not a charge; it’s the amount of revenue—it’s the commission that was paid from Google Ireland to Google UK for providing services. I just want to make that clarification. Again, I’m not sure I understand your question exactly, but they are not charges that are being made from other companies into the UK; it’s the other way around. It’s revenue that’s coming from Ireland to the UK. That’s because our sales to UK customers are being invoiced by our Irish entity. So I just wanted to clarify that, but I wasn’t sure what your question was after I had made that clarification.

David Mowat

Mr Brittin, you have said four or five times in the last 20 minutes that we think you should be taxed on sales. None of us, to my knowledge, believe you should be taxed on sales.

Matt Brittin

I apologise. I was referring to the Report.

David Mowat

In order to make progress in this hearing, I think it would be good if you didn’t repeat that. Our concerns are, not that you should be taxed on sales, just that you have come up with a number of contrived mechanisms, such as the double Irish, the Dutch sandwich, and the use of Bermuda, which is not completely pervasive amongst US technology companies, just to tell the gentleman on your right about that. But just in terms of making progress, can we not keep repeating that we think you should be taxed on sales. We don’t, and that is not the issue here.

Matt Brittin

I do apologise. Can I answer that point, and then I won’t mention it again? The reason I referred to that is, after I appeared at the Committee last time, the Committee wrote a Report with two key suggestions for Google—one that we review our structures and tax affairs, and the HMRC was in the process of doing that and has concluded; and secondly, in the Report you wrote—I appreciate that the Committee was differently constituted—that we should be paying tax in proportion to our sales and where our customers are, and that is why I referred to that. I accept the Committee’s composition has changed, but that is what the Committee said last time we appeared. So that is why I referred to it.

Chair

You haven’t changed the composition of your tax—

Matt Brittin

Well, the HMRC did exactly what the Committee suggested, and as you know, when we appeared before the HM—

Chair

Let’s be clear: Google has not changed its tax arrangements since then.

Matt Brittin

You recommended we looked at our structures in order to make them simpler and clearer, and that’s what the HMRC did, and Tom can explain exactly how that process works.

Chair

Mr Hutchinson, just to be clear, before I ask Caroline Flint to come in, you have not changed your tax structures since you came before the Committee in 2013.

Tom Hutchinson

What I can say is, we haven’t, so the operations in the UK are substantially the same. We have made some changes from a business perspective. We haven’t changed in the sense—

Chair

To be absolutely clear, you haven’t.

Tom Hutchinson

I want to make sure it is very clear that, you know, of course we make little changes here and there on things, but the overall substance of Google Ireland invoicing customers in the UK has not changed.

Caroline Flint

Good morning, Mr Brittin and Mr Hutchinson. Very helpfully, you said that of the £130 million, £18 million represented interest. For the remaining £112 million, were there any penalty charges involved in that—any fines for that remaining amount?

Tom Hutchinson

No; 18 interest and the rest is taxes.

Caroline Flint

And you think that the £130 million is a fair settlement in terms of what you should have been paying in taxes for the period between 2005 and 2015?

Tom Hutchinson

I do. Again, it went to an extensive audit. HMRC looked at all of our facts, talked to our customers, talked to our engineers, and they determined, “This is the amount to pay,” and it was higher than we paid on returns, so we had to think about whether it was a fair amount. We decided that it was.

Caroline Flint

Thank you, Mr Hutchinson. “Yes” would have sufficed for the answer there. So, if it is a fair amount, why weren’t you paying it—the proportion—in each of the tax years during that period?

Tom Hutchinson

That’s a good question. The tax rates are complicated. Oftentimes, there are a range.

Caroline Flint

What is a range?

Tom Hutchinson

I would love to explain how transfer pricing works and what was done in the audit just to give you some background.

Caroline Flint

Can I just stop you there? What have you discovered about how you pay tax in the UK that you did not know before the six-year investigation started?

Tom Hutchinson

It is very common practice when you are getting audited by a tax authority that they will take a different view on some of the complicated issues in terms of figuring out what are the right comparables and benchmarks to use in determining what is the right amount of profit associated with the substance of what has been done in the UK. If you look at comparable companies, there is usually a range of companies that make sense as far as the profit amount to show, so HMRC had a different view in that range, and it was within the same range.

Caroline Flint

Who is at fault here? Is it Google, Mr Brittin, or is it HMRC?

Matt Brittin

I think in this context what HMRC was looking at was whether Google in the UK was earning the right profit on the economic activities in the UK. We had filed accounts that showed a level of profit that they believed was lower than it should be. Their process looks, as the Committee asked last time, in detail at the activities of our people and then looks at what is the right benchmark to apply if we were to go outside Google and hire those services in. So somebody doing marketing.

Caroline Flint

Look, I understand all this, but you can understand that the public may be tuning into this or seeing it on the television later or reading it in tomorrow’s newspapers, and will be asking themselves how a massive company like Google, with all the expertise that it hires in the form of Mr Hutchinson and many others—how could HMRC not in real time tackle the problems of how you should pay your tax. Let me ask you another question. Interestingly, my colleague Mr Mowat made the point that we are not saying on this Committee that your tax should be based on your sales, but I have a quote here from Google at the time when you announced your payment of £130 million: “We are paying £130 million in respect of previous years when the rules were to pay in respect of profits you make in a country and then going forward we will also be paying in respect of sales to UK customers.” How’s that?

Matt Brittin

The headline I will explain and Tom can explain the application of the tax rules. The direction of travel, the OECD process and others are supportive of trying to simplify taxes and align more with some of the things that your constituents and others are concerned about with multinationals and tax, and we are supportive of that simplification process. One of the things—

Caroline Flint

Hang on—stop, stop, stop. This is a very bold statement that Google has made here. Presumably, you have been looking at, probably as part of this six-year discussion that you have had, what you should have paid in the past, and you state in this quote, “We will also be paying in respect of sales to UK customers.” When is that going to start? Will it start in the next financial year?

Matt Brittin

The settlement includes a proportion that is in respect of sales to UK customers, so every single year in the past covers that as well.

Caroline Flint

So is it fair, therefore—in a previous Committee there has been discussion about the value of what you do, and there was your article this morning in which you talk about how much is done in America in terms of R&D and everything else, helpfully leaving out Ireland and Bermuda in that discussion—to say that you are now acknowledging in this quote, “We will also be paying in respect of sales to UK customers”, that you have not really estimated the profitability within that activity in the UK so far, and you have to get a better handle on that in the future?

Matt Brittin

The settlement includes an element of the size of sales to UK customers in each of the 10 years between 2005 and 2015, and we will continue to pay on that basis now going forward. I would like Tom to be more transparent with you about a couple of amounts outside the audit period as well, so that you can understand those, too, because that is also something that we want to be transparent with you about.

Tom Hutchinson

There are two other payments that we made in connection with this, because we are talking about the amounts and focusing on the £130 million. There are actually two other amounts that were not directly related to the audit period. One relates to stock-based compensation issues. You mentioned before about how HMRC took a very long time to get to this point to collect this money from us. Stock-based compensation is an issue that was brought up as part of the audit—the discussions we were having with HMRC. In 2012, we changed our approach from including stock-based compensation in the calculus of how you determine your profits. There is another amount that we paid in additional taxes that relates to that stock-based compensation issue, which I just want to mention. We didn’t include it in our statement about the £130 million because it wasn’t part of the settlement, but it was a change in our actions and behaviour in filing our tax returns. There is one other issue, which relates to 2004. The audit period was 2005 to 2015. As you know, we agreed with HMRC about the methodology for calculating the profits for the UK entity for each of those years. 2004 was not part of the audit, but some of the questions they were asking in the interviews that we talked about related to the 2004 period. 2004 is when we first set up our Irish structure, where Ireland was invoicing into the UK. Before that, it was the US. So it was an additional amount that we paid. Rather than open up an audit for that period, they came to us and said, “Here’s the amount that you would pay under the same methodology,” and we agreed to that amount. That is an additional amount that went into the settlement.

Caroline Flint

Thank you, Mr Hutchinson. Arriving at the £130 million settlement is an acknowledgment that you weren’t paying your due tax during this period. You confirmed to us today that the £130 million doesn’t include any fine by HMRC for non-payment of tax, so thank you for that.

Tom Hutchinson

I just want to explain why that’s true. When you are looking at penalties, you are looking at whether the taxpayer had a reasonable argument for the amount of profit they were showing. HMRC looks to see whether we were just ignoring the rules or whether we interpreted the rules in a reasonable way. They determined that we did, which is why there was no penalty.

Caroline Flint

Maybe we’ll have some questions for HMRC on that a little later. Can I just move on to another matter? The other thing you confirmed, which is very helpful, is that there is something about sales in countries that you are going to be reflecting on, in terms of how you pay your tax in the UK in the future. I just want to move on to something else. The Financial Secretary to the Treasury, Mr Gauke, told the House of Commons, “I cannot talk about the Google case beyond information that is in the public domain”. He didn’t say, “I’m not privy to details of the Google case,” or, “I have no knowledge of the Google case.” Mr Brittin, something like 20-odd meetings have taken place between Google and Government Ministers over the past five years. Was the Google tax case discussed in any of those meetings?

Matt Brittin

I want to be very clear with the Committee that there is no involvement of politicians in HMRC’s process. It is an independent process, and we have not sought—

Chair

We know how HMRC works.

Caroline Flint

I am just asking you the question. In any of those 20-something meetings—

Matt Brittin

I will happily answer. We have never sought or had a meeting about the tax audit with any Government Minister.

Caroline Flint

No, no, not seeking a meeting with a Government Minister to talk about tax. At any of those meetings that you had with Government Ministers over this period of time, has the issue of your tax, what you should pay and the situation of your tax arrangements come up?

Matt Brittin

First thing, why are we having meetings with Ministers? Typically they are on issues of policy around the internet—child safety online, the application of copyright rules, how to stop child sexual abuse imagery online, dealing with counter-terrorism and security—

Caroline Flint

Anything about tax come up?

Matt Brittin

Just to be clear, that is the substance of most of the meetings that Ministers request to have with us.

Caroline Flint

Fair enough. And about tax?

Matt Brittin

I am sure, given the scrutiny we’ve had, that tax will have come up from time to time as a question. The main thing we would be saying in any conversation about tax is that we would support a simplification. We want to be paying the right amount of tax and be seen to be paying that.

Caroline Flint

That’s really helpful, Mr Brittin, because I presume that if any of the Google representatives were at a meeting, in conversation over a cup of tea, and tax came up, a written note would have come back into the company from your representatives at that meeting, with a read-out from what was discussed at the meeting. Wouldn’t that be the case?

Matt Brittin

No, because we have been through a six-year audit by the Government’s appointed independent tax experts.

Caroline Flint

No, no. I understand the six-year audit, Mr Brittin—

Chair

Ms Flint is asking about a different thing. She is asking about the informal conversations that may arise in those meetings, about tax—not about the actual audit. It is pretty clear.

Caroline Flint

I’m not trying to trap you here, Mr Brittin. You said in your own words—we’ve got it on the record—that possibly in some of those meetings a question about tax may have come up.

Matt Brittin

I’d be surprised if it didn’t, given the scrutiny.

Caroline Flint

Absolutely. I totally agree with you. As a former Minister and from working in the Opposition, when we meet with people, no doubt the representatives of organisations go back and do a read-out to the company they represent of what happened in that meeting. Have you had any briefings from those meetings that you are prepared to put in the public domain?

Matt Brittin

No, I’ve had no briefings about any meetings around tax conversations with Ministers.

Caroline Flint

No—about your meetings with Government Ministers and what came up with them over the past five years.

Matt Brittin

The briefings I have had on any of these meetings are typically around the policy issues associated with the areas I talked about.

Caroline Flint

But you cannot deny today that a conversation about tax may have come up in one of those meetings.

Matt Brittin

I would be surprised if tax had not come up from time to time, as you would understand.

Caroline Flint

Let me move on to something else. When you publicly announced the settlement of £130 million, the Chancellor tweeted from Davos about how wonderful it was. He also said in a speech: “This is a major success of our tax policy. We’ve got Google to pay taxes and I think that is a huge step forward and addresses that perfectly legitimate public anger that large corporations have not been paying tax. I think it’s a really positive step. I hope to see more firms follow suit and of course I’ve introduced a diverted profits tax which will require this going forward. So I think it’s a big step forward and a victory for the Government”. We have already heard in previous answers that the diverted profits tax is probably not going to apply to Google anyway. Can I just ask what co-ordination there was among Google, HMRC and staff working for the Chancellor on the press announcement that happened?

Matt Brittin

There was no co-ordination. We contacted the Chair to alert her to the fact that this matter was going to become public when we filed our accounts. We did the same—we had a short meeting with the Treasury team and the shadow Treasury team to alert them, as they had given the scrutiny. So far as we were concerned, it was important to be clear that we were paying more tax following this audit. At the end of the audit, we are paying the amount of tax that HMRC believes is the highest amount of tax. They cannot settle unless we are paying the tax fully based on the facts, and we cannot pay more than we are required to under the tax system because there is no legal mechanism to do that. We are in the spotlight, and I understand why, but we are paying the amount of tax that we have been asked to pay by the Government’s tax authority.

Caroline Flint

Really the question was about any sort of co-ordination around the press announcement. Perhaps I did not hear correctly, but why was it that weekend that you decided to make the announcement, with the Chancellor in Davos making a speech in which he could laud the tax settlement? Are you saying that there was no co-ordination whatever on the timing of the announcement?

Matt Brittin

The reason why we talked about the settlement was because we were filing our UK accounts and the settlement amount would become public.

Caroline Flint

What date were you filing?

Matt Brittin

I do not have the exact date, but it was around that time period.

Caroline Flint

Could you let us know exactly when you were filing the dates?

Matt Brittin

Yes, it is a matter of public record, because the accounts were filed on that day.

Caroline Flint

I have not got that information, and you have not got the information, so if you could let us know.

Matt Brittin

Yes.

Caroline Flint

Do you think it was unhelpful for the Chancellor to make that speech in such a way? It did sort of seem to indicate, given that there is meant to be separation between Government Ministers and HMRC, that he was maybe upping the ante on how much he as the Chancellor and other Ministers may have played a role in this settlement.

Matt Brittin

Some of the characterisation in the time since has suggested some kind of a deal. I want to be very clear: it is a result of the independent process, and it is the amount of tax that we are required to pay. It is not a deal, and there has been no political involvement in the HMRC process. That is the way it is designed to be, and it is one of the things that allows us to be completely transparent with HMRC so that it can reach the right amount of tax for us to pay.

Caroline Flint

My final question on this is: has at any time Google given permission to HMRC to brief Ministers on the details of your tax returns?

Matt Brittin

No. HMRC asked for permission to disclose more than they would normally under taxpayer confidentiality for this Committee—I think that is the session immediately following us. We gave them permission to disclose more about this, so that they could answer your questions. That is all that we have done in terms of—

Caroline Flint

Did that answer my question? Did you give permission at any time for them to brief Ministers? That was my point. It was not about this Committee. Did you give permission to brief Ministers on the details of the discussions, the settlement and your tax return?

Matt Brittin

No, I think I am right in that we have only agreed permission for them to give more details to you in the hearing subsequent to this, again with the aim of helping you understand their process, the questions they asked and the conclusions they reached.

Chair

Can I be clear, picking up on what Ms Flint has been asking? You say that you came to this arrangement and announced it as you did proactively, but this tells us that you were not paying the right tax for that period of time. Mr Hutchinson, you talk about HMRC having to be convinced that you have taken a reasonable interpretation of the rules. Are you not embarrassed as a top tax professional that you got that wrong for nine of the past 10 years?

Tom Hutchinson

Really when you are doing tax audits—we talked about how all large companies are going through tax audits, as we are throughout the world—it is very common to end up after that audit paying more taxes. These are interpretations of very complicated rules, so no I am not embarrassed by it.

Chair

So you would agree that it is a matter of interpretation between you and the tax authorities.

Tom Hutchinson

The tax rules are complicated, there’s no doubt about that.

John Pugh

Mr Brittin, I think it is fair, and possibly an understatement, to say that Google are a cutting-edge, innovative company—probably the most innovative in the world. Fair?

Matt Brittin

We try to innovate. We try to build products that work for everyone and help bring the internet into the hands of everybody.

John Pugh

It is also entirely fair to say that your product is absolutely brilliant at retrieving and displaying data—information.

Matt Brittin

We try to organise the world’s information and make it accessible to everyone.

John Pugh

Okay. Following on from that, as a lifeline, why don’t you extricate yourself from this current and repeated embarrassment by voluntarily publishing your accounts on a country-by-country basis before the OECD or the EU make you do that? Would you consider that?

Matt Brittin

We do publish our accounts in every country in which we operate, as we are required to do under law. I think you are referring, though, to the OECD’s process of becoming more transparent about tax affairs; and Tom should comment, because it is a matter of tax policy.

John Pugh

Well, do you personally welcome it?

Matt Brittin

I think I agree with the whole of the Committee that tax rules being simpler, clearer and more transparent would be a big step forward, and I wrote about that today.

John Pugh

What I am really suggesting is, why do you not get ahead of the game, in an innovative way, and subscribe to the new framework before you are obliged to?

Matt Brittin

I think that is one of the things we want to look at, and Tom can comment, because it is his responsibility.

John Pugh

You have said in your own press release—you have admitted international tax laws should be rewritten. What did you have in mind then yourself?

Matt Brittin

Well, I think many of the questions the Committee has asked are on behalf of constituents who pay tax as income tax and pay tax as VAT, and would see that the tax affairs of companies that operate across more than one country are complicated. I understand that, and that’s why I understand why people are angry when they see headlines reporting single-digit tax rates when we pay 20%; so anything that makes the system simpler allows companies to get on with doing what they should be doing, which is hiring people and creating economic value. That is what we want to do as well. We want to pay the right amount and to be seen to pay the right amount.

John Pugh

So, speaking from the corporate point of view, you actually welcome the EU-OECD initiatives here, and Google themselves would not have a problem with the framework as developed so far.

Matt Brittin

We really support the process of trying to simplify the tax system. Tom is the person who would make the decisions on how we would apply that.

Tom Hutchinson

I think you are referring to the OECD final reports in October last year. A lot of what’s in those reports are not final guidelines that all countries have agreed to, so it’s very hard to say we agree with everything that’s in those reports, but we definitely agree with, again as Matt pointed out, the process of trying to get countries all to agree on the same rules and be consistent and be simple.

John Pugh

But you can see what the problem is, can’t you? Politicians are often accused of saying different things in different places. You are being accused of saying different things to different tax authorities to suit your purposes.

Tom Hutchinson

I wouldn’t agree with that. I am not sure why you are saying that.

John Pugh

Sorry?

Tom Hutchinson

Why do you think that’s true? I am not sure I understand that comment.

John Pugh

Well, that is what the EU-OECD process is trying to clear up—to make clear what tax is paid in what place on what gains.

Tom Hutchinson

As I pointed out before, our overall effective tax rate for Google as a whole across the world, for the last five years, is 19%, so I would say, since that is very close to the UK tax rate, we are paying a fair amount of tax worldwide. It is up to Governments to decide where we should be paying that tax. I would love to see the system be more simple, so Matt won’t have to come to hearings like this and explain it, but we need the Governments to actually work together and develop an overall worldwide system to take that 19% and split it among the countries in a simple way.

Chair

Mr Hutchinson, it is your choice to have part of your company based in Bermuda, a tax haven. That is a choice you have made.

Tom Hutchinson

As Matt mentioned, Bermuda has no impact at all on the amount of taxes we are paying in the UK. That is because of the US system; it’s very common—

Chair

You use the rules to good advantage.

Matt Brittin

Can we just deal with that question, Chair, because—

Chair

Can I just go back to Mr Pugh’s point about country by country reporting. There are companies that do it better than you. You pride yourself on being a forward-thrusting company. Why don’t you lead by example and make, like Statoil or Barclays, a better fist of telling the taxpayers of the jurisdictions in which you work how you operate, what you earn and what tax you pay? Why don’t you voluntarily be more open?

Tom Hutchinson

As was mentioned, these rules—the country by country reporting rules—are coming into effect in 2016 this year, so those rules are already going to be out there and we support those rules, and we will provide that transparency according to those rules.

Chair

Yes, but only when you have to because of the rules. You did not choose to do it before, as some companies do. That is my point.

Matt Brittin

We would like to be recognised for paying the right amount of tax where we operate, but also for us to be clearer on the value we create in each country we operate in. Obviously, part of the value is paying corporation taxes and we pay the right amount exactly to the penny that the tax authority here has asked us to do, but we also create value through the use of products and services, through hiring people—we have 1,000 more people in the UK since the last time I appeared. So companies create value far in excess of the tax that they pay. We want to pay the right amount of tax but we also want products and services that help hundreds of thousands of British companies to grow, export and create jobs. The UK has been successful at that and we want to continue to invest here and to do more of that.

David Mowat

You make quite a play, Mr Brittin, of your desire, which is laudable, for a simpler tax system—if only all the politicians in all the different countries could get together and give you one, how much easier it would be. But it was not us who decided to ensure all our sales were booked in Dublin, it was not us who decided that the way you were going to choose to operate was utilising a technique called the double Irish, which I mentioned earlier. That is nothing to do with your apparently passionate requirement or desire for a more transparent system. You tell us you want a transparent system, yet with the system here you use the double Irish, you use the Dutch sandwich and you use Bermuda, which we will come on to. Your argument so far is, “Everyone else does it, so we do.” It does not seem to stack up.

Matt Brittin

Can I deal with your operational question and then ask Tom to deal directly with Bermuda, because that has come up a number of times? Operationally, we set up in a way we think can best serve our customers and the markets. We set up our headquarters in Dublin. We have people speaking over 14 languages there, serving customers across the region. The reason we do that is that we believe we can provide a better service by having expertise that is concentrated and shared. Many of our UK customers export to multiple markets and they have that resource that can speak multiple languages and help them to reach those customers. We set up our operations for business reasons, not for tax reasons.

David Mowat

To be clear on that point, because it is important, the evidence you have given us today is that you have set up in Dublin because of the ability to get lots of linguistic skills in Dublin. [Laughter.] It is nothing to do with the tax rates.

Matt Brittin

No, I said—

David Mowat

That’s what you just said.

Matt Brittin

No, I said that—

Chair

You’ve said that three times now, I think. We haven’t got that in London?

Matt Brittin

We love being in London and we have hired 1,000 more staff since I last appeared.

Chair

Multilingual, I hope.

Matt Brittin

What I said was—[Interruption.]

Chair

Can we let Mr Brittin answer?

Matt Brittin

Let’s be fair. There are two questions I want to come to—the operational question and the use of Bermuda and other issues, which you have raised a couple of times. We set up in Dublin to operate across the whole of Europe, the Middle East and Africa. We could have set up that operation in a range of different countries. We chose to be in Dublin. I mentioned to the Committee before that a lower tax rate was one of the factors in operating there. So were lower property costs, so was the access to high-speed internet connection across the Atlantic. There was a range of factors. Once you have a scale operation across multiple countries, it is a benefit to customers in the UK to be able to access export skills, whether in Dublin or elsewhere. That is the operational reality. We set up our operations. In terms of the question you raised, I would really like to address that.

Chair

Mr Hutchinson, do you want to talk to us about why you have a set-up in Bermuda? Some of us know but it would be good to have it on record.

Tom Hutchinson

Sure. I have already made this comment but it is important to point out that the Bermuda structure does not impact the taxes we pay in the UK. The Bermuda structure is related to the peculiar tax regime we have in the US. It is a worldwide tax system and that tax system encourages companies such as Google to keep their funds overseas. Once they bring that back, they are taxed at the very high US rates, so that is one piece of that pie, but the most important point is that it does not affect the amount of taxes paid in the UK.

David Mowat

Since you are answering my question, I would just like to—

Tom Hutchinson

Sorry, if I could just finish—just one more point.

David Mowat

Could I just come back on that? What you have just said is right, clearly. It does not affect UK tax per se because you have already moved that through Ireland. But I was using it as an example in reply to Mr Brittin’s point that all that Google wants is a simpler tax regime so you can get on with building search engines and do not have to worry about all this stuff. What I am saying is that your use of these structures, albeit it is not uncommon, is not indicative of that desire.

Tom Hutchinson

Again I understand that concern, but if you look at the fact that we were paying a 19% rate for the last five years, I would say that is a very fair rate. It is the rate in the UK, so I have to assume that that is a fair rate to pay on your profits. The question is, where do we show? It is not that we are not paying enough taxes. It is which country do we pay those taxes in. That is determined by Governments.

Deidre Brock

I have just a couple of quick questions I would like some clarity on, Mr Brittin or Mr Hutchinson. One of the issues that you mentioned in your accounts that HMRC challenged Google on during the audit was shared-based compensation; I think you referenced it when Ms Flint was speaking. Could you explain that to us, please, and how it benefits Google?

Tom Hutchinson

Sure. There’s share-based compensation. The issue is—obviously, that’s stock that is issued by Google Inc. and Alphabet, the parent company. It’s part of the compensation package for employees throughout the world. They are getting, as part of their compensation—for most employees, they’re getting stock in Google Inc. or Alphabet now.

Deidre Brock

How does that benefit you tax-wise, though? Why was HMRC bringing it up as an issue?

Tom Hutchinson

It’s not that it’s a benefit. The issue that we were debating with with HMRC as part of this audit was whether that benefit that’s accruing to employees in the UK should be included in the cost base of our UK entity, even though it’s not a true cost—there is not cash going out the door—and it’s not stock in the UK entity; it’s stock in the US entity. The question is: does that go into the base?

Deidre Brock

And the outcome of those discussions was—

Tom Hutchinson

This is why we paid more taxes. The outcome was that we would include it in the base for both prior years, which is part of the settlement, and from 2012 on, we included it in the tax returns that were originally filed.

Deidre Brock

With regard to its original use, could I ask what role your auditors, EY, or Ernst & Young, as I think they were called before, played in advice on introducing that?

Tom Hutchinson

Sorry, I’m not sure I understand the question.

Deidre Brock

What role the auditors played.

Tom Hutchinson

What role did they have in that process? The audit process or the—

Deidre Brock

Just in advising you to take that option.

Chair

In the tax advice.

Tom Hutchinson

I don’t know that EY was involved in that process. We would look at that issue internally. Oftentimes we’ll use advisers if the issue is unclear. As I mentioned, they are very complex, so we likely dealt with an outside adviser on that issue, but I can’t say if that was EY or some other outside adviser.

Deidre Brock

Could we get that information?

Chair

If you could tell us whether that was the case—

Tom Hutchinson

Sure. I can follow up, of course.

Mr Bacon

Mr Brittin, I have just a couple of questions. First, you said, “We paid tax at 20% on our activities in the UK.” Can you say what the number is that’s 100, of which 20% would be what you paid on your activities, just for the record?

Matt Brittin

The UK income for the last accounting period was £1.2 billion.

Mr Bacon

£1.2 billion. So that’s the number on which you pay tax at 20%.

Matt Brittin

No, that’s the revenue. We pay tax on the profits.

Mr Bacon

I’m asking you a question based on what you said.

Matt Brittin

Sorry, you asked me for the revenue figure.

Mr Bacon

If I do £1.2 billion multiplied by 20%, I get £240 million, which I quite like, but that’s not what you paid.

Matt Brittin

No, but you asked me—

Mr Bacon

You said, if I can just repeat it, “We paid tax at 20% on our activities in the UK.”

Matt Brittin

The profits on—

Mr Bacon

Ah! On your profits on your activities.

Matt Brittin

Yes—

Mr Bacon

Right. That’s not what you said. Yes, I thought taxes were paid on profits as well. Could you, then, just tell me: what is the number upon which you paid tax at 20%?

Matt Brittin

I don’t have the profit number in front of me, but being profit, it’ll be 20%—

Mr Bacon

I’m not looking for a “would be” answer. You said, “We paid tax at 20% on our activities in the UK.” You are now correcting that to “on our profits in the UK.” Do you mean, “We paid tax at 20% on our profits on our activities in the UK”? Is that what you’re trying to say?

Matt Brittin

Yes, that’s how the system works.

Mr Bacon

Okay, so what’s the number?

Matt Brittin

The number—£240 million. I’ll get the exact number, but it must be that if that’s the headline revenue number.

Mr Bacon

Mr Hutchinson, can you help us?

Tom Hutchinson

I don’t have that number in front of me.

Mr Bacon

You don’t know how much tax you pay in the UK?

Matt Brittin

No, we paid £46 million of tax.

Mr Bacon

How much?

Matt Brittin

£46—

Mr Bacon

I read £46 million somewhere as well.

Tom Hutchinson

Are you talking about last year, are you talking about—I’m not sure I understand what period you’re asking for. If you could slow down a bit—over what period are you asking for the tax?

Mr Bacon

I read the £46 million. I was just asking a question about something Mr Brittin said earlier. Presumably, if the number is 46, then 46.2 times 5—that’s £231 million; £231 million is then your activities in the UK.

Matt Brittin

That’s the profit on those activities.

Mr Bacon

That’s the profit.

Matt Brittin

Yes.

Mr Bacon

Okay, good. I just wanted to get that on the record. It took a bit longer than I had hoped, but anyway.

Matt Brittin

Sorry for mishearing you.

Mr Bacon

I have one other question. Why did it take you six years, which is as long as the second world war, to explain your activities adequately to HMRC?

Matt Brittin

This is a process that HMRC drives and runs, and one of the things they did in that process was take an extended period of time to look at the nature of an internet business.

Mr Bacon

Yes.

Matt Brittin

One of the things they did was slow down the process in order to ask us and other tax authorities and look at the nature of an internet business. So they went back and looked at the detail of how our products operate. But the timetable of the process is driven by HMRC, according to their published and fairly detailed and rigorous standards. Tom’s team was fully involved in answering all their questions throughout that period.

Mr Bacon

So you are basically saying that it was HMRC’s fault for being so slow.

Matt Brittin

They run the process according to their published standards and the requirements that the Government puts on them as their independent tax experts.

Mr Bacon

Our Committee is charged with looking at effectiveness, efficiency and economy. If it takes six years to investigate something, either you are very bad at explaining or they are very thick at understanding.

Matt Brittin

All I can say is that we did provide them with an awful lot of information. They interviewed a lot of staff, including myself and people in Dublin, from top to bottom of the organisation. They looked at our contracts, how our systems work, and sat alongside colleagues and listened to customers calling us so they could really understand the facts of our operation. In some cases, it might be faster if it is an operation they have seen many times before. They are looking at Google. We have a search engine and a whole range of things that are new, and they probably would have taken longer to do that, but I have to say that we were really fully transparent with them. Any information they asked for, we gave them.

Mr Bacon

I hope so. After that number of days—it seems to me incredible that it takes six years to explain what the internet is to somebody and how it works. Well, I’ll ask HMRC when they come on.

Mr Jackson

Whether, as Mr Bacon says, you were slow or they were thick, or a combination of both, was the substance a dispute specifically about their understanding of transfer pricing? Was that at the heart of the dispute?

Matt Brittin

The heart of the question they ask is, “What is the right profit for Google’s activities in the UK?” which is what Mr Bacon was getting to there as well. So at the heart of the question is, “What are the activities?” and “What is the right profit on those activities?” and they apply a methodology to that.

Mr Bacon

I did not have a view on whether it is the correct number or not. I was just trying to get what—

Matt Brittin

I appreciate that.

Mr Jackson

Do you think that they now understand your business model?

Matt Brittin

I think they have a very thorough understanding of what our people in the UK do and what our people in Dublin do, and what the products are and how the services operate. Tom’s team was at the heart of providing answers on a very regular basis.

Chair

Did they ask you questions about permanent establishment as part of that whole process?

Tom Hutchinson

Yes.

Chair

So did they investigate the London operation—