Google India slapped with £8.7 MILLION tax penalty

Google is facing more embarrassing revelations about its tax dealings after its Indian business was accused of misleading the government, violating accounting rules and slapped with a Rs76 crore (£8.7m) fine.

The penalty order, which Google is appealing, relates to the tax year 2008-9 and if upheld will ensure the search giant pays tax on all of its Indian advertising revenues in India.

The tax office said Google India credited Rs119.83 crore (£13.7m) to Google Ireland for distribution fees without deducting tax at source according to the tax treaty between the two countries, Economic Times reported.

The penalty order, seen by the ET, states the following:

The entire activity of (Google's) AdWords Programme and the revenue earned thereon has happened in India with both the advertisers as well people making use of the advertisements situated in India. To this extent, the income of M/s Google Ireland Ltd was held to be accrued as well as arisen in India itself.

The situation is complicated further as many regional Google businesses route their earnings via the Netherlands to an entity in the tax haven of Bermuda – an entity which is actually a subsidiary of Google Ireland, according to ET.

The tax office has now apparently recalculated Google’s profits to take account of the “excessive and unreasonable” distribution fees to Google Ireland. It also slammed the search giant for breaking local accounting laws by declaring "revenues on a net basis instead of showing it on a gross basis".

India appears to be taking a more robust approach to The Chocolate Factory’s tax avoidance than is happening in the UK, although Amazon, Google and Starbucks all got a grilling by MPs at the Public Accounts Committee this week.

Google was singled out for being “immoral” in its funnelling of funds out of the UK. Despite generating £2.5bn in UK sales in 2011 it paid tax of just £3.4m.

Things could get tougher in the UK too, with the chancellor rumoured to be announcing new tax avoidance plans in the autumn budget. ®