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
    +2

    Comment number 448.

    @144Harvo "I pay tax because I have to"

    That's the root of the problem. Personally, I pay tax because I have to and I WANT to. I think schools, hospitals, social care, defence and - yes - a welfare safety net are good things for a society to have. If you try to get away with paying as little as possible, you have no reason to complain if any of these things is deficient for lack of funding.

  • rate this
    +2

    Comment number 447.

    @330. Rufus McDufus
    The supermarkets will disappear? Just the same scare tactic as used to try and avoid the minimum wage. It is just plain not true. If the company can make a profit - and they can even if they pay proper tax and wages - then they will continue to do business here. Its simple. Companies don't 'sulk' or 'throw their toys from the pram'. Don't be deluded by scare stories.

  • rate this
    0

    Comment number 446.

    18.John
    "But its all the MPs fault. They need to change the tax laws, so the big companies don't have the option of tax avoidance. Tax avoidance will continue as long as it is legal."

    Forgive me for my naivity, but from what I have heard that the problem is that it is VERY difficult to close loopholes in the tax system. The more you close, another loophole appears.

  • rate this
    -1

    Comment number 445.

    It's ridiculous to call tax avoidance "an insult" or "immoral". Neither corporations nor individuals pay tax because they feel it is their moral duty to do so.

    What we need is a new legislation under which tax avoidance is NOT legal. Government / Parliament should spare us from their hypocrisy and instead take charge to change the law accordingly.

  • rate this
    -2

    Comment number 444.

    Don't compare ISAs with tax avoidance - it's totally legal.What should be made illegal is the fact that quantative easing has meant that many people can't afford to retire as the annuity their pension pot will buy due to low interest rates is peanuts. Until people can retire there will be fewer jobs for the young.

  • rate this
    +6

    Comment number 443.

    Mind you, for the first time old Osborne actually made me laugh out loud last night. There he was on national telly actually saying something about "the rich have to pay their share cutting the deficit".

    Oh lol, George, that's a goodun. You've been Chancellor how long? And you only just thought of that one?

    Let me think, who was it got a 5p/£ tax cut in last budget?

    Yes he's a real comedian!

  • rate this
    +2

    Comment number 442.

    I'm getting very tired of listening to MPs and the media complaining about the taxes paid by corporations large and small. The directors duty to the shareholders is to legally minimise tax paid. If the system lets them do this to a ridiculous extent then it's the fault of the system not the companies. Trying to make it appear morally unacceptable is totally hypocritical coming from MPs.

  • rate this
    +6

    Comment number 441.

    Sort the rules out so that these tax avoidance schemes are no longer possible.If people and Corprations can legally avoid tax,then both will continue to do so.

  • rate this
    +9

    Comment number 440.

    It makes you wonder why George Osbourne reduced corporation tax, as it appears corporations do not bother to pay it anyway. What a ridiculous state of affairs! This is not Communism, all that HMRC asks is for you to pay tax in this country if you operate here. Perhaps if corporations were made to pay tax we could have less cuts, generate more jobs and stimulate the economy with that tax money!

  • rate this
    +13

    Comment number 439.

    Politicians should stop whining on about these companies. If there's a problem change the law, make them pay. I'm sure all would cough up if faced with the reality of not being allowed to trade in the UK unless they paid their share.

  • rate this
    -1

    Comment number 438.

    To see the level of ignorace about tax on here is stunning.

    It's like coming from a place where everyone knows how to tie their shoelaces to visit a land where people think you stick shoes on your head or eat them.

    My job as a tax consultant is safe for years.

  • rate this
    +12

    Comment number 437.

    So Starbucks are in discussions with HMRC ? HMRC don't have discussions with me about my tax - they tell me what I have to pay and fine me if I am late. Changes in the law are required to ensure that profits made in the UK are taxed in the UK and payments to another part of the same company count as profits. If the companies refuse to pay up, shut them down.

  • rate this
    +3

    Comment number 436.

    No one likes paying tax but everyone should be treated equally. Companies that trade and make profit from the UK should pay corp tax accordingly no matter how big they are or no matter how much they try to blackmail us by claiming to take jobs away etc.
    If you have a UK passport you should pay tax no matter where you 'reside', dont like it? Hand in your British Passport then.

  • rate this
    +5

    Comment number 435.

    Today is going to be the biggest day ever for online ordering. For those of us like myself who believe the tax avoidance policies of Amazon and the ilk is abhorrent, today is the day to boycott purchasing from such retailers. Buy instead from UK based firms who pay corporation tax properly. Write to Amazon and tell them what you have done, if they don't have customers the don't have a business.

  • rate this
    +4

    Comment number 434.

    In cases of doubt, the HMRC already has the authority to estimate net profit of any company where there is that profits are being moved. The problem is not a lack of regulation, rather the HMRC are not using their powers properly.
    It is very simple; if HMRC suspect that an organisation have moved profit to another country, they estimate the profit that could be expected, and charge corp tax on it

  • rate this
    +4

    Comment number 433.

    In effect this is a benefit scrounge by large corporations expecting the rest of us to subsidise them. So while the Daily Snail harks on about benefit scroungers it should think about large corporations as well with their subsidises here subsidises there, staff having to claim tax credits because they pay so badly another subsidy. !!!

  • rate this
    +4

    Comment number 432.

    I wonder how much corporation tax EDF paid in the UK.
    We are about to give them £m so that they can encourage us to use less electricity, and can fund a new build programme. It would be nice if some of this bunce came from their taxes ?

  • rate this
    +7

    Comment number 431.

    "If people could reduce their tax bill legally, most would do so."

    I've seen this pop up quite a bit. The fact is your average worker can't reduce their tax bill whilst being paid through PAYE even if they wanted to.

    There are no loopholes for the average joe, so HMRC have that covered, but when it comes to large companies they don't seem to be able to do anything about it

  • 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
    +6

    Comment number 429.

    I wondered what the real reason for all the cuts in the UK was...It's looking like they were made so the government of the day could afford to continue letting their multinational super rich mates keep financially raping the system & everyone in it!

 

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