Is government too scared of Google, Amazon and Starbucks?

 

Multinational companies such as Starbucks, Amazon and Google were singled out by MPs as paying surprisingly little tax

If the UK had an industrial strategy over the past 30 years, it could perhaps have been characterised as "foreigners more than welcome".

To a greater extent than any developed economy, British governments have been almost wholly lacking in concerns when overseas companies set up shop in the UK or bought businesses here - because of the conviction that these overseas companies would bring decent management, useful competition and investment capital to this country.

Against this government policy backdrop, Google, Starbucks and Amazon seem to be examples of huge American companies doing as well or better in the UK than anywhere apart - perhaps - from their home market in the US.

That, at least, would be the case if success is measured in terms of revenues or market share.

Now, it should be said that if you talk to their British competitors, it is moot how much benefit their presence in Britain has actually delivered.

Media companies - television, radio and newspapers - have complained for years that Google takes colossal and growing amounts of net advertising revenues, while investing relatively little in the gathering of news or the making of television and radio.

Owners of small independent coffee shops are not exactly huge fans of Starbucks.

And there is no kind of British retailer, big or small, which isn't terrified of Amazon's growing presence in every area of consumer sales.

These are businesses that are transforming entire industries. Many of the consumers who use them would probably say for the better. Struggling competitors and their employees, inter alia, would say for worse.

Here are the questions posed by their growing presence in the UK:

  • is British cultural life richer or poorer for the migration of advertising revenues to Google?
  • does Amazon cause or merely accelerate the dereliction of swathes of the High Street?
  • is Starbucks a force driving down prices and improving service, or a lumbering quasi-monopolist crushing everything in its path?

And although they employ many thousands of people in Britain, it is unclear whether collectively they are net creators or destroyers of employment - and, in particular, whether they are net creators of what might be thought of as rich and fulfilling employment.

Start Quote

Is it remotely plausible that they would suddenly emigrate and stop trying to sell as much as possible to British consumers if they suddenly faced [bigger] tax bills?”

End Quote

This is not to take sides in what is an important debate, with passions that run high on both sides, merely to point out that their huge presence in the UK can't be assumed to be a net good thing.

Which is why today's report by the Public Accounts Committee (PAC), which points out that as huge and clever multinationals they exploit legal devices to minimise their liability to corporation tax in the UK, is of moment.

The thing about Google, Starbucks and Amazon is that they declare surprisingly little profit in the UK on the back of their massive market shares.

"Starbucks told us that it has made a loss for 14 of the 15 years it has been operating in the UK, but in 2006 it made a small profit" - in spite of a reported market share of almost a third.

As for Amazon, it had sales in the UK of £3.35bn in 2011, reported turnover in its UK operation of £207m and a "tax expense" of just £1.8m.

And for Google, its reported British revenues last year were £396m, on which it paid corporation tax of £6m.

Now for the avoidance of doubt, these three multinational companies are by no means unique in minimising their UK tax liability. Like all public companies, they have a duty to their shareholders to minimise their costs of doing business.

As it happens, the finance director of a huge British multinational, Vodafone, recently wrote a letter to journalists explaining why it paid no UK corporation tax in 2011-12.

If you are a shareholder in any multinational - and you will be, if you are saving for a pension - then it is in your interest that many use accounting techniques to channel their revenues to regimes, like Ireland, the Caymans and Bermuda, where tax rates are negligible to non-existent.

But none of us are just shareholders. We are also citizens. And we have an interest in making sure that companies that benefit from an educated workforce, a free health service, a solid and reliable legal system and an efficient transport network, make their proper contribution to an infrastructure whose absence would be devastating to them.

Which is why MPs on the PAC want Her Majesty's Revenue and Customs to be more aggressive in challenging the nugatory UK profits and minimal tax liabilities declared in the UK by the likes of Google, Starbucks and Amazon.

Here is an interesting question. Now that all three of them are so huge in the UK, is it remotely plausible that they would suddenly emigrate and stop trying to sell as much as possible to British consumers if they suddenly faced tax bills comparable to those paid by less internationally mobile UK companies?

Arguably their great success in the UK has shifted the balance of power towards the British tax authorities and the government. Google, Amazon and Starbucks would have a huge amount to lose if they reduced their commitment to Britain.

UPDATE 13:00 GMT

Starbucks is planning to change the way it allocates its costs for tax purposes in a way that should see it paying corporation tax in the UK for almost the first time, I have learnt.

Responding to criticism that, despite its share of almost a third of the UK coffee-shop market, it has paid corporation tax only once in 15 years, Starbucks is considering changing the way it accounts for all or some of the 4.7% of revenues it makes as a payment "for intellectual property" to a Netherlands-based company.

As I understand it, Starbucks in the UK would still make this payment, but it would no longer claim it as a taxable expense.

If Starbucks goes ahead with the accounting change, the announcement is likely to come before the chancellor's Autumn Statement on Wednesday.

This would then increase pressure on other multinationals which pay little or no corporation tax on huge sales in the UK - and especially Google and Amazon - to similarly increase their liability to UK corporate taxation.

MPs on the public accounts committee today said of Starbucks: "We find it difficult to believe that a commercial company with a 31% market share by turnover, with a responsibility to its shareholders and investors to make a decent return, was trading with apparent losses for nearly every year of its operation in the UK."

A source close to Starbucks said that the Seattle-based multinational had been stung by the criticism and was changing its ways.

 
Robert Peston Article written by Robert Peston Robert Peston Economics editor

Why is the Treasury's interest rate so low?

How should the government take advantage of the record low interest rates it pays?

Read full article

More on This Story

More from Robert

Comments

This entry is now closed for comments

Jump to comments pagination
 
  • rate this
    +3

    Comment number 68.

    Foreign sports stars and teams who come to this country to compete, for example Tennis players at Wimbledon and Formula 1 drivers and Teams at the British Grand Prix pay UK tax on that proportion of their income, so why are Foreign Businesses any different ?

  • rate this
    -3

    Comment number 67.

    The current 'government' are scared of anything that requires them to make a decision. But it's still all Gordon's fault that the global economy is stuffed.

  • rate this
    +27

    Comment number 66.

    More VAT, I hear you say? But the customer pays that, not the company!

  • rate this
    +2

    Comment number 65.

    Never has the UK had a govt that is so in the pockets of the Media that they are so scared of any negative stories being attributed to them that they will bend over backwards to appease major Corporates. PM only just recently made a speech about stopping Banker bashing when he read reports that some were going to Asian markets! And BoJo is already pleading for bigger & better tax cuts for the rich

  • rate this
    +7

    Comment number 64.

    17.thecoopster
    Driving these companies offshore would be a massive own goal.
    How much VAT and payroll taxes do the companies pay?

    Er.. none really - we pay it - you buy a book, you pay VAT , they pay VAT on their purchases which is more than covered by our VAT on the sale.

  • rate this
    +6

    Comment number 63.

    Difficult with Google because of thge business but with Amazon, Starbucks and the like I avoid buying from them if possible. I may be one small guy but I pay my taxes and buy from companies who pay theirs

  • rate this
    +3

    Comment number 62.

    Somebody here mentioned "supply and demand" but got it the wrong way round in support of those businesses.

    UK "supply" the vast affluent customer base and should "demand" that all foreign business meet a minimum criteria to operate in the UK:
    - pay your taxes (all of them)
    - employ a workforce that is majority British and who also pay UK taxes
    - adhere to strict corp governance best practices

  • rate this
    +7

    Comment number 61.

    Margaret Hodge says "HMRC get a grip" What she is trying to achieve: Man in the street thinks she is gunning for them to get tax from this companies.

    The facts:-

    It is her and here merry bunch of MP colleagues who draft, disuss and approve the legislation which they then then ask HMRC to implement.

    They could stamp out all this tax avoidance but the truth is they don't have the balls.

  • rate this
    +4

    Comment number 60.

    Cast your mind back 15 years folks. It's 1997, Tony has just become the Big Cheese and starbucks aren't here.
    Were we bankrupt? Was the exchequer crying out for cash? Was unemployment through the roof and people everywhere clamouring to serve coffee at the soon to be introduced min wage?
    Exactly how have Starbucks improved our country? And why if we did without them then do we need them now?

  • rate this
    0

    Comment number 59.

    Why not scrap corporation tax and have in its place another tax such as an increase in VAT?

    Companies tax liability would be directly proportional to sales, the mechanisms for collection are already in place and there would be no necessity to for new legislation.

    An additional benefit would be the attraction of more multinational companies to our shores.

  • rate this
    +3

    Comment number 58.

    I've been watching the Open unviersity/BBC4 Why poverty? series, which depicted the non-payment of corporation tax by multimationals such as Glencore with their huge mining investments in Zambia. I find it ironic that we are losing tax revenues from multnationals in much the same way as developing countries.

  • rate this
    +53

    Comment number 57.

    If these companies pulled out of the U.K. today, the "vacuum" would soon be filled by other companies selling to a current mature market. This would take up the jobs lost and increase tax revenue as these other providers would be more willing to pay tax.

  • rate this
    -5

    Comment number 56.

    32.Moribunder
    Much ado about nothing. The government has no muscle to force the companies to pay taxes. These loopholes have existed for years, and they will continue to do so.
    -
    VAT is much more effective. Multinationals could have penal VAT rates imposed if they evade corporation tax or try to dump here without manufacturing. Bar codes are a powerful instrument!

  • rate this
    +10

    Comment number 55.

    Who cares if they leave, it just leaves a hole in the market for someone in the UK to start up a similar business, take on the staff, take on the premises, pay taxes, and still sweep up multiple millions in profit.

    The best part is, such companies could then go and challenge these foreign tax dodgers in their own backyard. It wont happen though, because they make too much money here to leave.

  • rate this
    +32

    Comment number 54.

    It's time to stop pandering to the likes of Starbucks asking them how much they would like to pay in tax. We should be demanding tax.
    As an individual I can not turn around to HMRC and say sorry I've no spare cash so you can't have any so why should these people be able to?
    Try telling the council you can not afford their tax demand. It don't cut no favourable response all you get is the bailiffs.

  • rate this
    +2

    Comment number 53.

    If you listened to this incompetent govt you would think UK only became "open to business" since May 2010. They are so scared of upsetting their wealthy friends that they dare not raise any objections to any "morally repugnant" policies they may undertake. All a CEO has to do is talk to the Tory fawning media and say they are thinking of taking their Business elsewhere and another U-turn beckons!

  • rate this
    -26

    Comment number 52.

    UK has only herself to blame, It accumulated all this debt and now ask companies and individuals to pay someone else debt. Why on earth should we pay so lazy underclass, scroungers have a cozy lifestyle!? If you go on some of their houses you will find all sort of gadgets, flat screens, ipods, iphones and what have you. All paid by the middle class & companies. UK = Communism

  • rate this
    +34

    Comment number 51.

    Local businesses are far better for the fabric of our society. Starbucks and similar provide lots of menial part time jobs and take all the profits abroad. We've moved from a nation of shopkeepers to a nation of shelf stackers and burger flippers (and bankers). Dispite their huge profits (and low tax) Starbucks still make the worst coffee on the high st, a triumph of marketing over substance.

  • rate this
    +23

    Comment number 50.

    If you believe the activates of these multi-nationals is beyond the pale remind them of the one universal constant in commerce, "If you don't have any customers you don’t have a business". Shop elsewhere.

  • rate this
    +2

    Comment number 49.

    ALL the major UK banks hold their stashes of cash in offshore accounts, ALL major UK businesses stash cash abroad.
    The main crux is the HUGE disadvantage that British companys have in competing with these pirate corporates.

    I bet, that Amazon in UK does better this year than last, so MUCH for public MORALS, which FAZE away as long as consumers assume they are getting best materialistic deal

 

Page 30 of 33

 

Features

Copyright © 2015 BBC. The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.