Multinationals put their hands up on tax bills

LONDON LETTER:The tax practices of multinationals have been exposed, to the fury of big business

Big business is on the defensive about its tax bills. The Political Studies Association prides itself, rightly, on its intellectual heft, but its members put aside academic impartiality this week to applaud a Labour MP.

Margaret Hodge, named as parliamentarian of the year, was honoured for exposing the tax practices of multinationals who route income through low-tax countries such as Ireland.

The association’s members gathered in Church House near Westminster Abbey. As some pounded the tables, there was a chorus of approval: “Well done, well done.”

Such scenes would have been unimaginable a few years ago. However, attitudes towards multinationals have been changing as austerity continues.

Accepting the award, Hodge, a fiery and sometimes unpleasantly combative figure, mused that she had a better role now as a Commons chair than she ever had as a Labour minister.

Inept defence

Starbucks, Amazon and, to a lesser extent, Google made her life easy during an often inept defence of their actions when they appeared before her public accounts committee last month.

Since then, Starbucks has caved in, announcing that it will pay more corporation tax than is required under UK law – a move that has infuriated other multinational firms operating in Britain.

On Wednesday, chancellor of the exchequer George Osborne announced that Revenue would get 2,500 extra tax inspectors, plus £77 million to tackle such tax avoidance.

Starbucks told the PAC that it had paid £8.6 million in corporation taxes on a reported £3 billion in sales since it set up in the UK in 1998. Rents were high and investment in new stores had been heavy, said the Starbucks executive, who was savaged by Hodge and her colleagues.

Starbucks UK head Kris Engskov said yesterday it would pay “a significant amount” of tax in 2013 and 2014 “regardless of whether our company is profitable during these years”.

Many accountants feel that the company has been unfairly treated, since nothing it has done is illegal and everything was cleared with revenue and customs.

“[This] is a classic example of the nonsense that is becoming all too familiar,” says Cormac Marum of tax adviser, Harwood Hutton. “It really is tax analysis straight from the kindergarten.”

Perhaps, but Starbucks business has been hurt, which explains its willingness now not to maximise tax write-offs from sending revenues through Dutch and Swiss companies.

Firing line

Amazon is also in the firing line, having paid £1.8 million in the UK on more than £200 million of turnover last year. Google, also appearing before MPs, did best, although it did acknowledge that “low tax areas or tax havens influenced where it located its group companies”, the committee said in its report this week.

“The vast majority of Google’s non-USA sales are billed in Ireland. Google makes money from business- to-business advertising, adverts which can be targeted to the UK website and to UK Google users.

“In the UK, Google Ltd recorded revenues of £396 million in 2011, from Google Ireland, but paid corporation tax of only £6 million. Google Ireland paid for the services provided by the 1,300 staff in the UK.

“Google had approximately 700 staff who undertake marketing work in the UK as part of their activities, but only 200 of Google’s Irish staff of 3,000 were involved in marketing Google in the UK,” the MPs went on.

The key for Osborne, who needs tax revenues but does not want to frighten off multinationals, will be transfer-pricing rules, where profits are sent abroad.

The chancellor is working with Germany’s Wolfgang Schäuble to tackle multinationals at a global level, calling on the Organisation for Economic Co-operation and Development to identify gaps.

Undeclared income

In France, Google faces a €1.7 billion tax bill, while the Italian government claims its tax inspectors have found evidence of millions in undeclared income and unpaid sales tax.

Sensing the wind in the UK, accountants KPMG have urged companies to be “more transparent”, lest the increasingly bitter debate turns into a witch-hunt. Next year, a general anti-abuse rule comes into force in the UK, but many fear it will hit legitimate tax planning, rather than transfer pricing pushed to extremes.

Meanwhile, Hodge has a problem.

“I love my Kindle, but I have only now discovered that I can’t put anything other than Amazon stuff on it.”