SAN FRANCISCO — Google will pay about $140 million in British back taxes in a concession driven by a shift in how the Internet company will measure its success in the UK. The amount translates into 130 million pounds.
The accord, disclosed Friday, comes amid mounting criticism that Google and other major U.S. companies have been scrimping on their tax bills with a variety of accounting maneuvers that have rankled governments around the world.
In the UK, for instance, Google has been facing accusations that it hasn't been paying its fair share of taxes in a country that represents its second largest market outside the U.S. Similar complaints have been leveled against Facebook, Amazon.com and Starbucks.
Google has been minimizing its tax bill for years in the UK by keeping its headquarters in Ireland, where rates are lower. The strategy has helped Google boost its profits and its stock price and fatten its bank accounts. Google and its recently formed parent company, Alphabet Inc., have about $73 billion in cash.
George Osborne, UK chancellor of the exchequer, greeted the deal on Twitter, indicating other companies will now also be expected to pay up.
Good to see #Google paying more tax on past profits. We want successful businesses in UK - but they should pay their taxes.— George Osborne (@George_Osborne) January 23, 2016
#Google tax bill is a victory for the action we've taken.I introduced Diverted Profits Tax.We now expect to see other firms pay their share— George Osborne (@George_Osborne) January 23, 2016
The tax-reduction tactics spurred a six-year inquiry into Google's practices by an arm of the British government, Her Majesty's Revenue and Customs, or HMRC.
Although Google insists it never broke any laws, the company says it agreed with the HRMC on a change that reflects the "size and scope" of its UK operations.
The accounting switch, retroactive to 2005, requires Google to base its UK tax bill on ad revenue generated in the country instead of just profit.
The deal was immediately criticised in the UK for being insufficient. Labour politician John McDonnell told Sky News it looked like "another sweetheart deal.
"I'll be calling in parliament for a full report so there's openness and transparency," he said.
HMRC must publish details of deal with Google.Paying only £130 million for 10 year backlog looks like public relations sop.— John McDonnell MP (@johnmcdonnellMP) January 22, 2016
Forensic and pretty devastating critique of the Google tax deal. https://t.co/1rYXfbTJ8i— Wes Streeting MP (@wesstreeting) January 23, 2016
Google's UK ad revenue totaled $5.1 billion through the first nine months of last year -- a 7% increase from the same time in 2014. That accounted for 10% of Google's revenue during the period.
The agreement in Britain may foreshadow similar concessions in other countries.
"The way multinational companies are taxed has been debated for many years and the international tax system is changing as a result," Google said in its statement.
Google has rankled U.S. lawmakers by keeping most of its cash overseas so it won't be taxed, a practice that the company has given no indication that it's ready to abandon. As of Sept. 30, Google kept 50% of its cash — $42 billion — in overseas accounts.
Let's hope the @ato_gov_au search for any missing @google tax millions is as powerful as the Google search engine https://t.co/SWPhbE3rT5— Nick Xenophon (@Nick_Xenophon) January 23, 2016
The company was also called before a corporate tax avoidance inquiry in the Australian senate in 2015. On Saturday, Australian independent senator, Nick Xenophon, said in a statement he would be "gobsmacked" if a similar claim for back taxes was not also made in Australia.
"I just hope the Australian Tax Office search for any missing Google tax millions is as powerful as the Google search engine," he said.
Mashable contributed to this report