back to article Google, Amazon, Starbucks are 'immoral' and 'ridiculous' over UK tax

MPs didn't shrink from telling senior execs from Amazon, Starbucks and Google that they were "ridiculous", "unbelievable" and "immoral" about their UK taxes. Under questioning from the Public Accounts Committee, Andrew Cecil, the director of public policy for Amazon, tried to claim that he had no idea what sales were made in …

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FAIL

I stopped reading at the point where government flacks are calling someone else "immoral".

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Totally agree.

After the expenses scandal, it's repulsive for an MP to even feel they're in a position to judge the morality of another.

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Anonymous Coward

Re: Totally agree.

So what do you expect them to do - just ignore it?

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Pint

Re: what do you expect them to do

lower the taxes. They should compete for customer by free market rules

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FAIL

Re: what do you expect them to do

Really? That's your advice? Just lower taxes? Taken universally, that just means a race to the bottom Britain can't win. There's always going to be an island nation that'll be happy with a few thousand for a business license and no income tax at all.

Companies who want to do business here need to pay what they owe, and not export their profits overseas. To do otherwise is simple theft, and ought to be prosecuted as such.

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Re: Totally agree.

Let's start an independent enquiry into.... oh wait, let's not. Let's let MPs do what we elect them for. Independent enquiries really are costing us far too much!

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Re: what do you expect them to do

Pay what they owe? Who says they "owe" anything? Governments are not gods, they have no more right to another entity's money than any other random collection of bureaucrats. Taxes are an imposition extracted through the state's monopoly on the use of force, they are not a moral imperative, and avoiding them is not an immoral act.

But putting that aside for the moment, if you want to stop corporations avoiding taxes, then the solution is not to lambast them for "immorality", but instead to move the taxes to where they can't be avoided. Get rid of corporation taxes and all those other things and tax sales instead. It's virtually impossible to evade or avoid sales tax, and it's much easier to resolve if they try.

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Re: what do you expect them to do

"Compete for customers" should be done by deciding how much you're willing to pay for those customers. If they want customers in the bahamas, then they can pay 5% for them, if they want UK customers, they should pay UK taxes. They shouldn't pay Bahamas prices for UK customers, it's like paying Lada prices for a Jaguar.

We do decide what our tax rates are based on market competition, but when we're being stolen from it's not because the price is too high, it's because it's perfectly legal. We need to make it illegal to steal from us, not drop our prices.

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Re: what do you expect them to do

You can't tax sales, that's ridiculous. You tax profits. Which is what we're trying to do. But the issue is people are lying about their profits with loopholes. So we need to close the loopholes.

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Alert

Re: what do you expect them to do

"Taxes are an imposition extracted through the state's monopoly on the use of force,"

Oh god, the Randroids have arrived. Abandon thread.

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Stop

Me too!

I nearly choked!

"We're not accusing you of being illegal, we're accusing you of being immoral," Hodge retorted.

Clearly the irony went over his head.

Hello pot! Meet kettle!

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FAIL

Re: what do you expect them to do

"lower the taxes. They should compete for customer by free market rules"

That's fine and will work... if you don't mind lowering your standard of living to that of the lowest competing country in a 'how much can we do without' economic war.

We drop our tax, and then other nations drop theirs, and we're back to square one. Dropping taxes only favours the shareholders.

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Re: what do you expect them to do

"You can't tax sales, that's ridiculous"

VAT - no matter what you call it, it is a tax on sales. (Admittedly, one that the customer pays). Note that each of the companies will have paid VAT which is (probably) not included in the figures given to the MPs.

There is a manual published each year in the UK that provides information on the tax laws. This book has more than doubled in size over the past decade; because the number of laws relating to tax has increased. They try to close one loophole off; and before the legistlation has even passed, people are working out how they can use the new laws to avoid paying tax.

Essentially, instead of passing new laws, they need to go back through the existing legislation to remove the stuff that creates the loopholes in the first place; but as that is actually much harder, they just make new laws that exacerbate the problem.

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Re: what do you expect them to do

@JeevesMkII: " that just means a race to the bottom Britain can't win. "

And why is that? Because taxes are too high because the government is doing too much?

Funny thing going on here in the US: the states have different taxes in different ways in different amounts. The result is that a state with a lot of government spending (say, Illinois) tends to have higher taxes and then loses jobs to states with lower spending/taxes. Remember in 2011 when the Chicago Board of Trade was considering moving to Indianapolis? ( http://blogs.courier-journal.com/politics/2011/06/16/the-indianapolis-er-chicago-board-of-trade/ for a reference to it ). Nothing came of it, but that this story had legs for a couple weeks says a LOT.

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Unhappy

Re: Totally agree.

"So what do you expect them to do - just ignore it?"

No, what I expect them to do is copy the practice, and that's exactly what Margaret Hodge's family company Stemcor does. UK revenues of £2.1bn, and paid taxes equating to 0.01% of those revenues. Good socialist values Margaret! Not that the rest of the Westminster leeches of any political persuasion are any better.

Remember, fellow commentards, having the one job and paying your fair share of tax applies to us, not them.

http://www.telegraph.co.uk/finance/businesslatestnews/9668396/Margaret-Hodges-family-company-pays-just-0.01pc-tax-on-2.1bn-of-business-generated-in-the-UK.html

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Anonymous Coward

Re: Totally agree.

It wasn't all MPs who were on the fiddle, please don't make out like it was.

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Go

Re: what do you expect them to do@DanDanDan

"You can't tax sales, that's ridiculous"

Of course you can. Petrol, fags, booze have punitive sales taxes added, and most items are subject to VAT; property has stamp duty charged. In the case of VAT these costs are mostly reclaimable by all except the retail customer, but the other taxes usually aren't. Arguably personal income tax is simply a sales tax on the sale of your labour to an employer.

A sales tax where avoidance of corporation taxes is clear is a damn good idea, and could even be simplified by tweaking the rules on VAT to make it reclaimable except in those circumstances. Somebody will now say "you can't do that because" but there's already situations where companies can't reclaim VAT, usually of a fairly technical nature (for example certain retail loan administration costs).

What is lacking here is (as usual) the political will to take a problem, and fix it. Grandstanding on a palrliamentary committee is a nice bit of fun, but this shower aren't accountable for anything, and I can't see that flea-brain Osborne fixing this ever.

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Re: what do you expect them to do

The obvious thing to do with a giant loss making industry that is as vital to the UK as Starbucks - is nationalise it.

A fair price would be paid to it's shareholders based on the profits they have been making!

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Re: what do you expect them to do

The quickest way to tax profit is to tax where that profit comes from: sales.

I'm no randian. I simply start from the position that government is a necessary evil that we should have as little of as possible and work from there. Rand argued that government was unnecessary. Very different position.

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Anonymous Coward

Re: Me too!

""We're not accusing you of being illegal, we're accusing you of being immoral," Hodge retorted.

Clearly the irony went over his head"

Well, for a start, Hodge is a woman.

Secondly, how is she immoral? Or do you mean "all mps are immoral" because you say so?

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Anonymous Coward

Re: what do you expect them to do

Your way of having less government is to tax sales? It's genius, you for governor of the Bank of England.

Oh, hang on, that's nonsense.

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true, true

but the amount of money involved is altogether more serious

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Unhappy

Re: Totally agree.

thats correct, but it was most of them.

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FAIL

good point

Of course all mp's are moral,

exept the selfe serving media whores on gameshows right now,

or the ones too sick<sic> to attend their own fraud trials,

and of course the ones already convicted of fraud,

and the ones who stole from us and grudgingly gave it back when caught

(have to try that at a bank sometime, rob it, and offer to pay it back if im caught.)

and not forgetting the ones responsible for the uk becoming embroiled in torture and mass murder

and geoffery archer

that list barely covers 650 or os, so that leaves....

oh!

and the head that irony went over, i dont think it was hodge's

<is that the sound of another whoosh as something passes over someones head>

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Flame

Re: what do you expect them to do

Taken in order:

1) Taxes are a requirement for the running of a country that is not in a state of anarchy, it is simply a question of who pays, and how much. That the requirement of paying taxes sometimes requires the force of the state (usually via the courts) is simply to ensure that everyone who owes tax, pays it. Incidentally, those courts also require people and corporations to pay taxes in order to function.

2) Avoiding tax doesn't mean tax ultimately does not get collected, it just means that the distribution of taxation shifts. Avoiding several billions of pounds collectively in corporation tax ultimately means the less well-off pay more tax relative to their income, meaning they have less money; avoiding tax can therefore quite easily be described as an immoral act.

3) Your solution to "stop tax avoidance" appears to be "don't charge tax". This is stupid, please don't do the stupid.

4) We have sales tax, it's called Value Added Tax. Again, please don't do the stupid.

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Mushroom

Re: what do you expect them to do

"Taxes are an imposition extracted through the state's monopoly on the use of force"

Taxes are also the basis of building a whole infrastructure and rule of law that alllow a large chunk of UK residents to be able to pay £5 for a coffee should they choose to do so. Blatantly taking advantage of that is 'not cricket'.

Having said that, it's not ILLEGAL, only IMMORAL, and if the collective MPs are so outraged at the low level of tax that corporations are legally allowed to pay, maybe they should be pissed at the people who actually made the laws and voted for them.... Oh wait, that's teh MPs themselves! Ah well, maybe next time they shouldn't accept all the wining-and-dining and campaign contributions they receive in return for making the tax law so advantageous to their lobbyists. Maybe they can show more moral fibre in their day-to-day behind-the-scenes dealings than in their public-facing look-at-me-I'm-such-a-paladin-of-the-people personas.

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Re: what do you expect them to do

"The quickest way to tax profit is to tax where that profit comes from: sales"

Currently sales tax (VAT) is paid by the consumer... the corporation can claim back the part that it's expenses are on, so that won't solve anything. The way to do that is to start taxing corporations on revenue not on profits. (although that would open a whole other can of worms)

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Holmes

@DanDanDan - Re: what do you expect them to do

Wrote :- "You can't tax sales, that's ridiculous."

So what is VAT? And before that there was an explicit "Sales Tax".

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Set a thief to catch a thief

obviously...

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Holmes

Re: what do you expect them to do

The same way that Ireland lowered taxes, and then ended up having a screwed economy?

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Anonymous Coward

Re: good point

@Naughtyhorse,

So again, simple question was asked, and not answered, how is Hodge immoral?

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Bleurgh

Can we stop talking about the amount of corporation tax paid on sales turnover? The two have no relation...

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Re: Bleurgh

I think that you have missed the point.

These companies claim that their profit on billions of pounds of sales turnover is non-existent. If that were true there would be no problem. However, it appears that they use slippery accounting procedures to export the profits that they do make to tax havens. Because they hide their real profit margin, the only way to comment on this or for El Reg to report on it, is to look at the tax paid as a proportion gross revenue.

If you generously assumed that Starbuck's EBIT was 15% of gross revenue, then they would need to be paying more like £90M in tax on revenues of £3.1B.

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Anonymous Coward

Re: Bleurgh

They have all their IP and branding registered in a tax haven and every store leases the IP from the other division. The coffee and supplies are artificially inflated in price and therefore the stores make no money.

Welcome to Hollywood accounting business style.

Who still thinks globalisation is a good thing? we'll end up moving to a model where there is a sales tax (on top of VAT), only the companies won't pay that, you will!

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Re: Bleurgh

From what I gather, they report their profits in low tax areas so they pay low tax on the profits, they report their losses in high tax areas so reducing their tax burden in those areas to zilch. The tax code should really be simplified so that companies can't shift their profits out and bring their losses in, then they would have to start paying the appropriate amount of tax, or find another loophole.

As they point out, the UK is pretty profitable so they won't up and leave and if they threaten to up and leave, that's fine, Costa Coffee pays their taxes..........

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Re: Bleurgh

Quote: "we'll end up moving to a model where there is a sales tax (on top of VAT), only the companies won't pay that, you will!"

And who do you think pays gives companies the money to pay corporation tax? They just raise their selling price to cover that the same as any other cost of doing business.

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Re: Bleurgh

fuck generosity! lets assume its 99% and backdate the bill 3 years.

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Re: Bleurgh

Because the company makes money and then pays money on the profit with corporation tax.

Look, it's perfectly straightforward.

Current system:

Cost of delivering item to customer: 50p

Markup: 50p

Selling price to customer: £1.20 (50p+50P + 20p VAT @ 20%)

Corporation tax: 10p (let's say 10% to keep the calculations simple)

Under current system, company gets 40p (markup minus corporation tax) and gubmint gets 30p (VAT plus corporation tax).

Proposed system with 0% corporation tax and 10% sales tax (to replace corporation tax):

Cost of delivering item to customer: 50p

Markup: 50p

Selling price to customer: £1.30 (50p+50P + 20p VAT @ 20% + 10p sales tax @ 10%)

Corporation tax: 0p

Company gets 50p, gubmint gets 40p and you just paid an extra 10p. What a great idea.

Yes, they could opt to reduce their profit to keep the final price down, but do you believe for one single second that they would?

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Re: Bleurgh@chr0m4t1c

"Yes, they could opt to reduce their profit to keep the final price down, but do you believe for one single second that they would?"

Well as not all businesses are playing the same tax dodging game. So Starbucks would become more expensive than Costa; Amazon would lose some, maybe all their price edge. In some cases John Lewis would be cheaper than Amazon with a 10% uplift.

So it becomes the tax-dodger's call, and then the choice of their customers. If you love Starbucks, and want to pay the UK tax that they ought to pay, then you'd be free to do so.

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Re: Bleurgh

@chr0m4t1c

You have a few errors in your maths. Corporation tax is paid on profits, so in your first example the "profit" is only 50p therefore tax is 5p. But the rest is ok, leaving the company with 45p. However, the problem is that if you are Starbucks, the cost of delivering a £1 coffee is, allegedly, £1, so the corporation tax is zero. The question is how to force Starbucks to pay that 5p.

A sales tax of just 5% is enough to collect that 5p. As to where it comes from: Now that as part of the same tax changes corporation tax got reduced to zero, Starbucks magically discover that they can sell a £1 coffee for costs of 50p after all, so they have plenty of margin to pay the 5p. If they decide to increase prices instead they can, but they won't be competitive against Costa, who are also paying 5p sales tax but didn't increase their prices because they also saved the 5p corporation tax they were paying. Because let's face it, if Starbucks can put 5p on the price of a coffee and still sell them then they're going to do that, regardless of a change in tax.

The interesting thing is that now it makes sense to bring all EU sales though the UK because our sales tax only affects UK sales and our corporation tax is now zero. Whether that's a good or bad thing is another matter.

The problem with all of this is more subtle. A company that makes £1m on sales of £10m currently pays the same corporation tax as a company that makes £1m on £100m, but with a flat sales tax one will pay 10x what the other pays. The latter company is only making 1% so could not swallow a 5% sales tax without increasing prices. This would mean we'd need different rates of sales tax on different items to maintain the status-quo.

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Unhappy

So where do they do their litgation?

If these companies claim their business is outside the UK then whenever they need the services of our courts (IP litigation etc) then perhaps they can take that to Bermuda and see how they get on...

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I'm not a fan of this sort of tax avoidance but it's only part of the picture and it leads me to suspect some element of political show boating from PAC.

If you look at the HMRC Calculating the tax gap briefing from October, you'll see that HMRC reckon some £32bn in tax income went walkabout during 2010-2011 via avoidance or evasion. It further says half of this, £16bn, was due to SME's (small and medium sized entities- you're normal, non-multinational giants). Why not go after them with the same sort of publicity?

Oh that's right, Reuters didn't do a report on them.

Sorting out the taxation of these multinationals is going to be a legislative nightmare that is going to take years to get right. Whilst this is a step in the right direction, I fear that the gov won't see it through to the bitter end.

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Sorry, your, not you're. :(

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It's Political Grandstanding, that's all

The fact is: successive Governments from either side of the House have failed to stop Tax Avoidance. It's been going on since the Middle Ages and it will continue to go on. The fact that this Government and the previous Labour Government have totally failed to stop it say it all. MPs are wasting their time 'grandstanding' in PACs and should be in the House passing legislation.

Full props to Troy Alstead (CFO of Starbucks) who told the MPs to, effectively, 'fuck off, it's none of your business' when asked about Starbucks' Dutch operations. He knows: 'there's nothing you can do because what we've done is perfectly legal - that's why it's called Tax Avoidance and not Tax Evasion. Try and stop us - you can't. Decades of successive Governments have all tried and failed. Yours is no different.'

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Anonymous Coward

If nothing else

the profits of the SMEs are mostly staying in the UK where the interest is taxed.

The main point here is that if you do business in the UK then you have to contribute in taxes, the same for everyone.

Legislation may be needed but it isn't that big a deal.

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Happy

Re: It's Political Grandstanding, that's all

You're right, it is grandstanding. It is a selfish attempt to show that the government is being tough on this issue.

But it is also the government trying to be tough on this issue. By calling in the big firms and identifying their practices, the MPs can then start to close the loopholes starting with the biggest ones through proper legislation.

Also, by slamming the big firms first, it sends a message to people lower down the chain that this is wrong, the government will be fixing it and you should start playing ball before you get caught out.

Finally, the court of public opinion plays a big role in our producing our legislation.

So far, Google are the only ones who get the message. Their practices are still shady, but at least they are honest about them and willing to work with the UK government. Amazon and Starbucks are digging their own grave.

<===== Seriously El Reg, no icon for a sensible debate?

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Boffin

Re: It's Political Grandstanding, that's all

Yes, I was impressed (a little) that Google did come straight out and say that they were trying to avoid Tax. A point that rather rubbed Amazon and Starbucks' noses in it.

It will be interesting to see if 'Do No Evil' extends to 'Pay a fair amount of tax in the countries you do business in'.

Also wanting an intelligent debate icon.

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Anonymous Coward

Re: It's Political Grandstanding, that's all

Yeah, I wish the firms had come straight out and said "well, we don't make the rules.. We try to pay as little tax as is leagally possible, and, if you don't like it then change your rules, but don't pretend you don't know what's going on".

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Anonymous Coward

Re: should be in the House passing legislation

They should be debating legislation - if they're just passing it they're not doing their jobs properly.

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Re: It's Political Grandstanding, that's all

"Full props to Troy Alstead (CFO of Starbucks) who told the MPs to, effectively, 'fuck off, it's none of your business' when asked about Starbucks' Dutch operations"

I thought that under EU finance laws hidden sweetheart deals were illegal because they distorted the alleged free market across the EU - how can one country compete against another if it doesn't know what it's competing with?

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