Google row: Tax UK sales not profit, says Lord Lawson

Lord Lawson described corporation tax as "profoundly unsatisfactory"

Corporation tax should be replaced with a levy on firms' UK sales, according to the former Chancellor Lord Lawson.

It was "unsatisfactory" tax had to be collected from big firms through "ad-hoc" deals, he told the Telegraph.

His comments come after an agreement for Google to pay £130m in tax dating back to 2005 was condemned by critics.

The government and HMRC defended the deal and the Chartered Institute of Taxation said corporation tax should not be abandoned.

Labour has called for the public spending watchdog, the National Audit Office, to investigate what it criticised as a "sweetheart deal".

Earlier this week, the European Commission said it was considering how to respond to a letter of complaint from the SNP about Google's tax deal with the UK.

'Grossly unfair'

Former Conservative Chancellor Lord Lawson told the Telegraph: "It is profoundly unsatisfactory that corporation tax has to be collected from large multinational corporations by a series of ad hoc compromise deals, as we have once again seen with the Google affair.

"It is also grossly unfair on smaller businesses, who are unable to shift profits between tax jurisdictions and have to pay the full amount due under UK law."

Google tax row: What's behind the deal?

Google's tax agreement came after years of criticism of it and other multinational firms over their tax arrangements in the UK and across Europe.

The payment by Google, praised by Chancellor George Osborne as a "victory" for the government, covered money owed since 2005 and followed a six-year inquiry by HMRC.

Lord Lawson said the arrangement showed corporation tax should be replaced with "a much lesser tax, bolstered by a tax on corporate sales".

The payment by Google covered money owed since 2005 and followed a six-year inquiry by HMRC

He added: "While multinationals can artificially shift profits to whatever tax jurisdictions they choose, sales are where they are, and can't be shifted.

"Instead of endless discussion at international conferences of one kind or another, the UK should take the lead in implementing this much-needed reform."

But John Cullinane, tax policy director of the Chartered Institute of Taxation, said: "Frustration at the problems of taxing global businesses should not lead us to abandon corporation tax.

"There are more workmanlike solutions.

"In the round, it's still a nice little earner for the Exchequer and the country."

What is corporation tax?

Limited companies, a foreign company with a UK branch or office, or a club, co-operative or other unincorporated association such as a sports club, must pay corporation tax on profits.

Taxable profits for corporation tax includes the money the company or association makes from doing business, investments and selling assets for more than they cost.

Companies based in the UK pay corporation tax on all profits from the UK and abroad.

Foreign companies that have an office or branch in the UK only pay corporation tax on profits from its UK activities.

Shadow chancellor John McDonnell has written to Mr Osborne demanding details of the Google settlement.

A senior HMRC official insisted that it was collecting the "full tax due in law".

Google, which makes most of its UK profits through online advertising, paid £20.4m in UK taxes in 2013. The value of its British sales that year was £3.8bn.

The US company has its European headquarters in the Irish Republic, which has a lower corporation tax rate than the UK, and it has also used company structures in Bermuda, where the corporation tax rate is zero.