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Tighter regulation likely of ‘immoral’ tax practices

December 2012

The tax regime for large corporations operating in Europe is likely to be tightened up following a furore in the UK over alleged practices by Amazon, Starbucks and Google that minimise their tax liability.

In an inquiry led by parliamentary Public Accounts Committee chairman Margaret Hodge, the three companies were accused of using complex accounting methods to siphon profits away from Britain to avoid paying tax there. During the proceedings, she described their tax practices as legal but “immoral”.

The nature of the debate shows how tax policies could expose companies to reputational damage and tighter regulation. The UK probe appears to form part of an international effort to review the way large companies also exploit tax loopholes in the US, Luxembourg, France, Germany, Japan and China.  

Hodge, who grilled bosses called to her committee, suggested a new sales-based tax be introduced to keep UK-generated profits in Britain, adding that corporate tax avoidance “makes people incredibly angry in the current fiscal climate.”

Her demand chimes with British and German proposals to persuade the G20 to make multinationals pay their ‘fair share’ of tax. The European Commission has also proposed a Europe-wide formula under which businesses would pay tax to EU member states, reducing opportunities for switching profits to low-tax jurisdictions.

Amazon has refused requests to discuss its tax affairs, but is said to have paid between zero and £163.1m ($258m, €203m) in UK tax on last year’s £3bn-plus turnover. It calls its seven UK warehouses ‘order fulfilment units’, but its UK sales are registered to Amazon EU Sarl in low-tax Luxembourg.

Internet provider Google has its European headquarters in the low-tax Irish Republic, but insists it pays its taxes in every country it operates in. Google reported $4bn (£2.5bn, €3.14bn) in UK sales last year but paid tax of only £3.4m, despite a group-wide 33% profit margin.  

Google UK’s chief executive Matt Brittin told the committee: “We pay the tax we are required to under the law. We are not avoiding tax.”

Starbucks, the world’s biggest coffee bar chain, has paid UK tax of £8.6m on sales of £3.1bn in the last 14 years, having reported losses on its audited accounts in all but one of those years.

Starbucks told investors its European operations made a $40m profit last year but its accounts for Britain, Germany and France – representing 90% of European sales – showed a $60m loss.

Starbucks chief financial officer Troy Alstead told the committee that the company was ‘not at all pleased’ with its UK showing, but partly blamed high rents for the loss, like it does rents and labour costs for low profits in France and Germany, where it pays no corporation tax.

German Green Party MEP Sven Giegold went as far to say that allowing companies to juggle money to minimise tax liabilities was “a form of corporate welfare”.




Public Accounts Committee | UK & NI Ireland | Tax

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