Tax paid by some global firms in UK 'an insult'

 
Starbucks Amazon Google Multinational companies such as Starbucks, Amazon and Google have complicated tax systems - all say they operate within the law

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Global firms in the UK that pay little or no tax are an "insult" to British businesses, a committee of MPs says.

Public Accounts Committee chairwoman Margaret Hodge said HM Revenue and Customs (HMRC) needed to be "more aggressive and assertive in confronting corporate tax avoidance".

Multinationals such as Starbucks and Amazon have come under fire for paying little or no corporation tax.

They generate UK sales of hundreds of millions of pounds.

Starbucks, for example, sold nearly £400m worth of goods in the UK last year, but paid no corporation tax at all, because it transferred some of the money to a sister company in the Netherlands in the form of royalty payments, bought its coffee beans from Switzerland and paid high interest rates to borrow money from other parts of the business.

HMRC said it already ensured that international companies paid the tax due "in accordance with UK tax law".

The Treasury said it would provide HMRC with £77m in new money to help it track down wealthy individuals and companies who tried to avoid paying tax.

The Treasury said it expected to recoup £2bn a year as a result of the measures announced.

Starbucks Amazon Google
Starbucks Amazon UK Google
  • UK sales of £398m in 2011
  • Paid no corporation tax
  • Told PAC was lossmaking for 14 of 15 of the last years
  • Employs 8,500 staff in UK
  • UK sales £3.35bn in 2011
  • Stated profit of £74m
  • Paid £1.8m in corporation tax
  • Employs 15,000 in UK
  • Turnover of £396m in the UK in 2011
  • Paid £6m in corporation tax
  • Employs 1,500

Source: PAC, Reuters

Downing Street also confirmed that Chancellor George Osborne planned to introduce a general anti-avoidance rule and hold talks with other G8 developed countries about clamping down on tax avoidance.

But the spokesman rejected calls to name and shame companies involved in tax evasion and aggressive tax avoidance.

Start Quote

Although they employ many thousands of people in Britain, it is unclear whether collectively they are net creators or destroyers of employment”

End Quote

UK-based companies pay corporation tax on their taxable profits wherever they are made. Foreign companies must pay tax in the UK on profits made in this country.

The Public Accounts Committee's report came after it heard evidence in November from executives from Starbucks, Google and Amazon about the amount of corporation tax the companies had paid in the UK.

'Evasive evidence'

Margaret Hodge told the BBC that there was a danger corporation tax was becoming "voluntary" and that this had to change.

"These global companies are making money in the UK. All we are saying is that if you have economic activities in the UK you are making profits and tax is payable on that," she said.

It emerged on Sunday that coffee shop chain Starbucks is in talks with HMRC about the amount of tax it pays.

In the report, Mrs Hodge said the level of tax taken from multinational firms with large UK operations was, "outrageous and an insult to British businesses and individuals who pay their fair share".

"The inescapable conclusion is that multinationals are using structures and exploiting current tax legislation to move offshore profits that are clearly generated from economic activity in the UK.

George Osborne and Chief Secretary to the Treasury Danny Alexander say tax avoiders will be pursued

"HMRC should be challenging this, but its response so far to these big businesses and their aggressive tax planning has lacked determination and looks way too lenient. Policing the tax system must be at the heart of what HMRC does."

An HMRC spokesman said: "We relentlessly challenge those that persist in avoiding tax and have recovered £29bn additional revenues from large businesses in the last six years, including £4.1bn in the last four years from transfer pricing enquiries alone."

'Breathtaking hypocrisy'

In a statement to coincide with the committee's report, Amazon said it paid all applicable taxes in every jurisdiction in which it operated: "We have a single European headquarters in Luxembourg with hundreds of employees to manage this complex operation," it said.

Starbucks said in a statement: "We have listened to feedback from our customers and employees, and understand that to maintain and further build public trust we need to do more.

Analysis

It is worth remembering that corporation tax is not the only tax that companies pay. Corporation tax does raise £50bn in the UK, but other taxes that cannot be avoided so easily include VAT; then there is the business rate, which raises some £25bn a year. The Institute for Economic Affairs says that is enough to pay for the secondary education system and the police and the fire service.

Also, companies pay National Insurance contributions for every worker they hire and fuel duty and vehicle excise duty which are one of the biggest revenue earners for the government.

That doesn't mean that foreign companies aren't doing their best to avoid paying corporation tax on the profits they make here, but then UK companies operating in France, China or the US are probably doing much the same there.

Laws on corporate taxation are extremely complex and often part of internationally negotiated treaties, one reason they are difficult to change and why companies have become very good at exploiting every legitimate and legal loophole that they can.

"As part of this we are looking at our tax approach in the UK. The company has been in discussions with HMRC for some time and is also in talks with the Treasury."

'Small fry'

The War on Want charity, which is campaigning for more to be done to tackle tax avoidance, accused the government of "breathtaking hypocrisy".

It said: "Osborne and Cameron are happy to talk tough on tax. But, in reality, their plans will only go after the small fry on the fringes, while giving a green light to multinationals like Amazon, Google and Starbucks to continue avoiding billions in tax."

Heather Self, a tax expert, told the BBC assessing tax for major companies was not simple.

"If you buy a book from Amazon you are actually buying from a Luxembourg company," she said. "It decides how many books to buy and at what price they sell them for. All you have in the UK is a warehouse, a very big warehouse that employs a lot of people but that is all it does. The risk is taken in Luxembourg.

"Profits paid here are for the activities it undertakes here and that is not highly profitable. It is not as simple a situation as the Public Accounts Committee likes to make out sometimes."

 

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  • rate this
    +95

    Comment number 430.

    Whilst I don't like the fact major companies are avoiding tax, they aren't doing anything illegal. Therefore, I blame the numerous governments who must have known this was happening, but have done nothing about it for many years. I wonder why nothing is ever done about these problems until a story becomes big news?

  • rate this
    +23

    Comment number 154.

    Tax avoidance is not just limited to large global firms.

    A few years back I worked for a privately owned (American) pharmaceutical in Cambridge who had a 'tax efficiency' account located in Bermuda.

    Yes, they paid some Corp tax but in % terms, not much.

  • rate this
    +71

    Comment number 149.

    The bottom line is profit. If I was a business man I would use any scheme to optimise mine. The fault if there is one is the system that allows this to happen. The rules need to be changed.

  • rate this
    +49

    Comment number 145.

    Why do people think a sales tax is an answer? Then prices go up and the consumer pays: the business just passes the money from us to the government and we are worse off.
    What we need to do is realise that our income tax is subsiding their profits: stop going there and use the struggling independents (who won't shout your name out into the bargain): they will soon change their ways

  • rate this
    +76

    Comment number 144.

    I pay tax because I have to. I minimise my tax payments by playing within the (ridiculously complicated) rules laid out by the HMRC. So do Starbucks, Amazon et al.

    It really is as simple as that, and everyone can bluster as much as they want about it, but it needs a change in the law before the corporations will be compelled to pay more.

 

Comments 5 of 6

 

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