Taxing multinationals, and the public accounts committee: is there a place for common sense?

Following the sessions of the public accounts committee with Google and the HMRC, many commentators remain uncomfortable that US multinationals with significant UK operations can legitimately claim not to be taxable in the UK.

The committee itself was clearly puzzled that evidence given to it by ‘whistleblowers’ did not fatally undermine Google’s own position. Answering criticism last week that the committee does not understand the underlying tax principles well enough, Mrs Hodge challenged tax professionals to explain in ‘common-sense’ terms why the ‘anger’ felt by members of the committee and the public was misplaced. So here goes.

The question the committee was wrestling with is how it can be possible that an organisation that conducts sales activities in the UK, with UK customers and using UK employees, is not taxable on the profits from those sales. The answer is that it is, but in a way that reflects the division of activities between the UK business and the business elsewhere…

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