Amazon, Google and Starbucks have been accused of an “immoral” use of secretive jurisdictions, royalties and complex company structures to avoid paying tax on British profits by a committee of MPs, reports The Guardian.
A hard-hitting report released on Monday by the Commons public accounts committee, the parliamentary spending watchdog, also criticises HM Revenue & Customs for being “way too lenient” in negotiations with corporations which pay little or no corporation tax. It calls on the government to draw up laws to close loopholes and name and shame companies that fail to pay their fair share.
The report’s scheduled release, following a humiliating parliamentary session for the three multinationals’ executives, prompted a flurry of media activity over the weekend. On Saturday night, Starbucks announced that it is reviewing its tax approach to Britain with a view to paying more following widespread criticism of the coffee chain’s tax regime.
George Osborne will on Monday announce an extra £77m a year for two years for more staff at Revenue & Customs to pursue companies which avoid paying tax. The chancellor said the extra investment would help secure an extra £2bn a year in unpaid tax.
He is also expected to confirm a deal with Switzerland which the chancellor hopes will raise more than £5bn in previously uncollected taxes from Swiss bank accounts over the next six years.
Danny Alexander, the Treasury chief secretary, said of the Starbucks statement: “I am delighted they are taking this issue seriously and they are listening to the feedback from their UK taxpaying customers.” He too had been boycotting Starbucks. “I might be able to buy a coffee from Starbucks again soon.”
Margaret Hodge, the chair of the PAC, said its report showed that corporations had been allowed to get away with “ripping off” taxpayers because of a weak tax authority, poor legislation and a lack of international co-operation.
“Global corporations with huge operations in the UK generating significant amounts of income are getting away with paying little or no corporation tax here. This is an insult to British business and individuals who pay their fair share.
“Corporation tax revenues have fallen at a time when securing proper income from taxes is more vital than ever.
“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,” she said.
Executives from the multinationals who appeared before the committee last month were singled out for criticism.
Responses to questions by Andrew Cecil, Amazon’s director of public policy, were “evasive”, “unprepared” and lacking credibility.
The company’s UK website reported a turnover of £207m for 2011, but its tax bill was just £1.8m.
Amazon avoids UK taxes by reporting European sales through a Luxembourg-based unit, MPs alleged. This structure allowed it to pay a rate of less than 12% on foreign profits last year – less than half the average corporate income tax rate in its major markets.
Troy Alstead, Starbucks’ global chief financial officer, claimed that the firm has lost money in the 15 years it has been operating in the UK except in 2006.
The world’s biggest coffee chain paid £8.6m in total UK tax over 13 years during which it recorded sales of £3.1bn.
Alstead’s claim was “difficult to believe” when contrasted with boasts of success sent to shareholders, according to the report.
Starbucks has been able to cut its tax bill, MPs said, by paying fees to other parts of its global business, such as royalty payments for use of the brand.
Google had £2.5bn of UK sales last year, but despite having a group-wide profit margin of 33%, its main UK unit had a tax charge of £3.4m in 2011.
The company avoids UK tax by channelling non-US sales via Ireland, an arrangement that has allowed it to pay taxes at a rate of 3.2% on non-US profits. It also diverts some profits through Bermuda.
Revenue & Customs has been asked by the committee to be bolder in challenging tax avoidance by multinationals and to be ready to prosecute if necessary.
“Top officials need to challenge the status quo and be more assertive, for example in accepting that excessive levels of royalty payments are appropriate when businesses are making a loss,” the report states. Benchmarks for common charges such as royalty payments and intellectual property rights could be published by the Treasury or tax officials. A company’s tax practices should also be made part of its mandatory reporting requirements, which would increase transparency, the MPs say.
The government and the tax authorities should also take a greater lead internationally in closing loopholes and increasing transparency in tax havens, particularly across Europe, the report concludes.
Osborne told BBC 1’s Andrew Marr Show that he will work closely with France and Germany to close tax loopholes. “It will be a big priority for the G7, G8, which we host next year,” he said.
A spokesman for HMRC said it had reduced tax avoidance by large businesses in recent years. “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 inquiries alone. These figures speak for themselves.”
