Clap Google, Amazon in irons to end tax shenanigans - MPs
New laws and prosecutions could be necessary to force Amazon, Google and other multinationals pay a fairer amount of corporation tax in the UK, according to MPs. The Public Accounts Select Committee today published its report after holding hearings with Amazon, Google and Starbucks on the tiny amount of tax they pay in Blighty, …
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Compliant with the law?
Whenever I read stories like this, where some politician is talking about what is morally right blah blah blah, I instantly know they don't have a leg to stand on and they're just grandstanding to make themselves look good in popular opinion.
The facts of the matter are that it is not the responsibility of a company or individual to structure their affairs for the benefit of the taxman, nor is there any imperative, either legal or moral to pay more than you are required to do so. As such, if a company can structure their affairs in such a way as to pay no tax, then good on them.
Also, what we're talking about is corporation tax on profits. This doesn't take into account the VAT they have to pay on the goods they sell, nor does it take into account the Income Tax and NI (Both Employers and Employees) that they have to pay for every member of staff they hire.
Finally, and this is a personal thought. If I go to Starbucks and give them my money, I get a cup of something that resembles coffee (kind of). If I go to Google and give them my money, I get web services. If I go to Amazon and give them my money, I get just about any item I need. If I give the government my money - sorry, when the government helps itself to my money, I get sweet f-all because they've pissed it up the wall on pointless crap. On that basis I think I'll only use companies which give the government the middle finger!
Re: Compliant with the law?
Actually you get health care, roads, public transport funding (of a sort), public education, defence, a working judiciary (of a sort), arts funding, libraries, technology R&D investment, aerospace investment, and one or two other things.
It's certainly true that government is corrupt and not very good at IT projects.
But 'governments only waste money, unlike private corporations' is one of the biggest outright lies there is.
Private corporations mostly give money to upper management and shareholders.
Upper management and shareholders spend it on 'luxury' tat, like shiny watches that can't keep time and two-grand handbags.
The smarter ones spend it on property, which is why a crappy one-bed in an arse-end-of-nowhere part of London costs more than a quarter of a million now, or around four or five times median income.
So if upper management and shareholders had less money, that would hardly destroy the UK economy.
As for VAT - duh. Maybe you should learn how VAT actually works before claiming 'they have to pay VAT on the goods they sell.'
And if Starbucks put up coffee prices for their customers - well, that would be a shame, wouldn't it?
The rest of us will be down the old coffee shop having real coffee, and probably a spot of lunch too.
Re: Compliant with the law?
You've just proved my point. "Upper management and shareholders spend it on 'luxury' tat, like shiny watches that can't keep time and two-grand handbags." Which is a far better way to redistribute money in the national and global economy than giving it to the government who will promptly waste it on the next thing they read in the Daily Mail that they think will get them reelected.
As for VAT. They have to charge VAT on the goods and services they sell. Where the goods or services are bought by the end user, VAT is payable to the Exchequer. If they're purchased by a (VAT registered) company, then the buyer can reclaim the VAT, but will need to charge VAT to its customers. So the likes of Starbucks and Amazon will no doubt pay significant amounts of VAT. Admittedly, Google which mainly sells to businesses, less so.
Re: Compliant with the law?
And a point many people forget, probably because they listen to politicians too much, is that the people of this country don't have a deficit. It is the government that has a deficit as a result of its own profligacy. I personally see no reason to help them get at my money so that they can remove their deficit. They've already helped themselves to a good slice of my pension fund, so Amazon et al. paying less tax if fine by me if it keeps the price of the goods I buy down.
If the government wants the extra tax, they should change the laws accordingly. Judging by past performance, their chances of getting that sort of detail right are minimal, however.
Re: Compliant with the law?
They don't pay VAT, their customers do. All they do is collect the VAT for the exchequer.
This s similar to PAYE. Companies don't pay PAYE - employees do, the companies simply collect it for the exchequer.
There is also a risk that some of the big players will simply shift their operations out of the UK altogether and run them entirely from a "tax friendly" location.
I'm not agreeing with their practices, but there is a reason why they structured their books that way. Perhaps if the UK were to lower the rate of corp tax to something a little more competitive with the rest of Europe where google etc base their operations, it would be a win win? Businesses that do pay their due get a break in the current economic climate, and the big players have an incentive to simplify their tax books. I'm no economist, but doesn't that make a vague amount of sense?
Good luck to them
If starbucks manage to find a way to sell me coffee in the UK without having an operation in the UK then good luck to them - I guess if you had a really long straw it might work, but I would be worried the coffee would be cold by the time I had sucked it from Seattle.
An argument to 'lower' corp tax, or any other tax, to become more competitive seems to me to suffer from two flaws - the race to the bottom fallacy, and the idea that nothing government does is virtuous. I would be the last to argue that governments always spend money effeciently. They do , however, generally provide the fabric of a society that makes it a nice place to live,. You know, the little luxuries like roads and health care, and old age pensions and schools, and security and public libraries and museums and some mild protection against red in tooth and claw capitalism. Not many Swedes emigrrating to Somalia despite the disparity in tax rates.
"There is also a risk that some of the big players will simply shift their operations out of the UK altogether and run them entirely from a "tax friendly" location."
Simple solution to that: make it illegal. ie ban them from trading in the UK if they do that.
I have a vague feeling that is in itself illegal, certainly I can't see the WTO being happy with such a move and presumably UK companies could find themselves at the end of retaliatory action from.
no there isnt!
starbucks arent going th leave the UK the amount of PROFIT they make is significantly more than the tax the Should pay, they'd still be ahead of the game either way.
DUH!
the cluse is that the UK corporation tax rate is less than 100%
"There is also a risk that some of the big players will simply shift their operations out of the UK altogether and run them entirely from a "tax friendly" location."
That old chestnut...
It's basically not true. If Starbucks leave the country, are people going to suddenly stop buying coffee? Nope - the gap in the market will be filled by somebody else. And they'll probably pay their taxes...
nick g. http://forums.theregister.co.uk/forum/containing/1648384
no, the company that fills the gap will obey the law & since it is required by law to minimise costs it will pay as little tax as it (legally) can get away with
a company's duty is to its shareholders which means it is legally required to MINIMIZE its tax payments.
Playing devils advocate ...
How can you change the system ?
If we're not careful, we're going to end up with a system where companies will be expected to pay the tax HMRC *thinks* they should pay, rather than the tax they should pay, based on a set of codified rules.
A lot of these tax wheezes were set up by governments in which successive ministers left to take up highly paid directorships with firms who are taking advantage of said wheezes.
Hmm ...... doesn't it sound rather hollow coming from Politicians who are still being caught pilfering the common tax payer via their expenses.This said its more a moral issue of company's paying something back into the economy that gives them their revenue they are as has been stated, doing nothing contrary to UK tax laws.
So my big mistake in life was that when I studied I should have borrowed the money from my Cayman Island subsidiary of myself. I could then legitimately argue that a substantial proportion of any salary I earn (amazingly almost exactly an amount just larger than the tax free threshold) is due in royalty payments to my Cayman Island self, for IPR, and interest on that original loan. Of course my CI self sold the loan onto a version of me in Luxembourg -and amazingly a few jumps later I find I own my own loan. Of course as I am both feckless and lazy, its unlikely my investment will ever pay off, so I am claiming myself as a tax deduction,. I have every confidence that in a few years time I will be so successfully unsuccessful that i can retire and really move somewhere hot and sunny.
As an individual HMRC would rape you. You need lobbyists or at the very least to hire former politicians.
Options:
These kind of things MIGHT work:
1) Introduce a Tobin Tax (a very small tax charged each time money is moved. Would get some back - but the city/government or someone in the UK really didn't like this idea.
2) Put up VAT
3) IE lower Corporate tax rates to incourage more companies to use the UK as a place worth taking tax.
Realistically though VAT probably can't go up much higher (23% MIGHT work...), and the tobin tax was disliked for a whole load of good reasons too. Lowering corporate rates is a race to the bottom though, because if the UK cuts, then Ireland will cut and then somewhere else will cut.
Its a mess. It won't be sorted in a hurry.
Re: Options:
A slightly higher VAT (maybe 22-23%) and zero corporation tax would neatly eliminate the problem. (Some people here seem to think VAT is only charged on part of the price, because of deductions: totally wrong, the amount deducted is the amount of VAT *already paid* to HMRC earlier in the supply chain, so the end result is that the whole price gets charged VAT exactly once).
Hodge herself is one of the biggest "tax dodgers", though, through her family company Stemcor - a shame nobody had the guts to point that out to her in her stupid show-trial.
With Google, just how much UK tax did they expect to collect from people paying nothing to visit a website hosted in Switzerland?! Do they expect the New York Times to pay HMRC too? (Yes, Google employs some people in London, mostly working on Android and other mobile software; if the UK government tried squeezing them too hard, they could just relocate those staff to Dublin, or lay them off entirely. Good luck to HMRC collecting a single penny then!)
Re: Options:
I don't get this race to the bottom argument. Apparently if we lower our corporation tax, other countries will lower theirs and we'll end up with no corporation tax in a bid to attract business.
The odd thing is, Ireland already has a lower rate of corporation tax and I haven't noticed the rest of Europe dropping theirs in a bid to undercut them, so generally I call bollocks on that idea.
Re: Options:
"I haven't noticed the rest of Europe dropping theirs in a bid to undercut them, so generally I call bollocks on that idea"
The French and Germans in particular have been very anti such things, and have been trying to use the european bailout money to force the Irish to raise their tax rates (they haven't got much leverage against Luxembourg mind you). Depending on where you sit that's a good thing, a bad thing, or just blackmail. Note that the French already have very low corporate taxes (albeit offset by higher personal taxes).
But its interesting to look at the average effective rates of corporation tax, because the UK fares very badly (unless you think tax is a good thing):
http://www.iiea.com/blogosphere/effective-eu-corporate-tax-rates
Historically, despite high corporate taxes, the UK has been able to sustain its international trade status by virtue of the perception of fair and unbiased courts, the rule of law and ease of doing business. Parliament has been doing its best to undermine that critical ease of doing business with a never ending flood of legislation, and at a guess in trying to sort this tax issue out will make the tax code (already one of the most complex in the world) yet longer and more complex.
Re: Options:
"3) IE lower Corporate tax rates to incourage (sic) more companies to use the UK as a place worth taking tax."
Interesting thought. I haven't done the research, but I suspect that a 1% cut in the UK rate to encourage companies to base here would not generate sufficient extra revenue to make up for the 1% loss from existing UK companies. (or 2%, or 3%).
And since the EU law was specifically written to encourage this type of behaviour, our European counterparts would reduce their rate within months of the UK.
Re: Options:@Velv
"And since the EU law was specifically written to encourage this type of behaviour, our European counterparts would reduce their rate within months of the UK"
See the link in my post above. Our effective corporate tax rate is already well above that incurred in almost every other European country, bar Germany. Germany has a booming economy and high levels of employment, so they see no need to reduce their tax rates. Most of the rest of Europe undercuts us by a long chalk, so we'd need to go some before we had a lower tax rate than (say) France.
The varying national tax rates don't support the idea of nations competing with each other (otherwise they'd all be roughly the same), but the behaviour of companies in either moving to, or shifting profits through lower tax jurisdictions does support the idea that companies do react to this.
Re: Options:
Because other countries see this race to the bottom and refuse to participate.
Ireland are being BAD neighbours, and shouldn't be bailed out just because of this.
Re: Options:
Repeat after me:
VAT is only paid by the end user who is not VAT registered (few exceptions apply, like embassies etc).
So, if as you say VAT is increased, who do you think will end up paying for it?
Their obligations?
Google, Amazon and Starbucks have obligations to their shareholders to make as much money as they possibly can which includes keeping as much out of the tax man's hands as possible.
If the government want them to pay more, they should close or limit the loop holes that these companies are using.
Trying to guilt them out is just wrong. They're only doing what the law allows them to do. It's the same as the faux outcry when Jimmy Carr got caught using some offshore account.
Re: Their obligations?
Jimmy carr was insulting other people about their tax arrangements when doing the same thing, so he can go do one!
Re: Their obligations?
I love this argument - that everything right up to the edge of the law is somehow acceptable and 'right', completely ignoring any idea of social responsibility on the part of the people who make up these companies, who are supposed to be moral/ethical/sentient beings themselves.
Is it right that in countries with lax environmental regulation, that companies should just dump pollutants in the rivers? Or is it right we call them out for being immoral, exploitative and unethical?
Is it right and moral that companies use child labour and sweatshops in countries where that's allowed, in order to keep costs as low as possible so they can skim a slightly larger profit margin from selling the resulting goods to the west?
Me, I reserve the right to call the people running those types of companies (from my examples above) immoral and probably even evil, despite the fact that they're within all applicable laws.
By the way, I'm not trying to say the folks running Google, Amazon and Starbucks are evil, I'm just saying that the argument that companies are exempt from moral judgements over their actions is nonsense.
Re: Their obligations?
But there's a perfectly good argument to be made that keeping money out of the government's hands is the morally right thing to do.
Re: Their obligations?
"Google, Amazon and Starbucks have obligations to their shareholders to make as much money as they possibly can which includes keeping as much out of the tax man's hands as possible."
Could you point out where in the law of the jurisdiction where they are incorporated that is the case?
It certainly isn't the case in the UK and it isn't (backed up by case law) the case in Delaware. You'll find it's probably not the case anywhere in America or Europe. Directors of the company have far, far more latitude to run a company than simply seeking maximal profit as even a cursory reading of company law would show.
Set some simple tarrifs
Cross charging with over-inflated values to cut tax bills is as old as the hills.
Set a maximum 'royalty' for invisible imports such as branding and 'services'. E.g 3% of turnover.
Set a max fair value on imports of 'things' that are not sourced competitively (i.e. which drain cash to a foreign partner company).
Biggest reason that tax law has never been reformed so far is:
- Vested interests rather close to MPs' interests.
- General fear of big companies and their clever lawyers
Re: Set some simple tarrifs
"Set a maximum 'royalty' for invisible imports such as branding and 'services'. E.g 3% of turnover."
Amazon's EBIT margins are only of the order of 3-5% anyway. Approximating EBIT to taxable profits, your 3% allowance would enable them to shield the majority of their profits anyway, and that's before any tax allowances on capex and the like. As the UK is a significant exporter of services, if other countries set similar limits then you would immediately cause a whole range of major British businesses to relocate elsewhere, probably more than offsetting the extra income from hounding Starbucks and Amazon.
Regarding the "fair value" point, that's a much better one, and the subject is usually referred to as "transfer pricing". Given what the tax avoiders are doing, it may come as a surprise that manipulating your transfer pricing to avoid tax is illegal in almost all jurisdictions. In the UK, it is illegal unless it increases the UK tax take. If you want to check, read through the pages and documents linked off the following:
http://www.hmrc.gov.uk/manuals/intmanual/Index.htm
So the necessary legislation and rules already exist to address this. As usual they are poorly enforced, or not enforced at all, and the instinctive reaction of Porky Hodge is that we need yet more laws and more tax regulations, in addition to the circa 12,000 pages of Tolley's UK tax guide (five volumes, around 8 kg). I'm not sure whether stupidity is a criteria for MP's or it is just picked up as soon as they arrive at Westminster.
FINALLY ... AND ABOUT TIME !!
I don't need to repeat that !
If we, as consumers, were caught playing the same tricks as these megaliths .. we'd soon be punished, and possibly sent to prison.
Unfortunately, the tax authorities do not design taxation rules with 'morals' in mind. NOW perhaps they'll change their minds and methods.
If we, as customers in the territory in which multinational is permitted to operate; choose to pay our hard earned, TAXED, cash to these companies - we have EVERY RIGHT TO EXPECT the multinational to return some of their PROFITS to our own Government's tax coffers.
That way we stand a fair chance of reducing our deficit !!!
Go Government ! ... make it happen soon ... PLEASE.
Morals Ha.
Interesting exercise- do you have morals (yes/no pls). Now ask 50 people the same question. Now ask those people if criminals should have the vote, what is acceptable force against a burgler, etc. Now ask if you have morals.
Morals are a fluid and very malleable idea which are ultimately wrong. They are wrong because we all think we are good and moral because we have morals although what we call morals is based on our own twisted ideas of good. Legal frameworks are supposed to act on the majority acceptable morals and so all this hype is easy manipulation to cause outrage (and so shift the morals).
So back to the tax issue. We want nice and shiny but we dont want to pay for it. So we up tax. But that makes people who can afford to live to become poor so we have welfare. But who can pay for welfare? So we tax business and take money away, but we want them to employ people which requires money. We also want products at acceptable prices, so manipulate the price with public subsidy (market manipulation) but who pays for it? So up prices to pay tax but reduce price because things can be subsidised by the public money so raise tax.
If your confused then you are equivalent to the tax system. What is worse is the demand from people that these multinationals pay less than local so we should increase tax on the multinational. Surely we should reduce the tax on local business or close the loopholes and accept a loss of business and rising prices.
If we want our companies to have a fighting chance then reduce their tax's and maybe modify the rules slightly for multinationals to bring them both in line? We either want jobs or tax money for welfare but we cant demand both.
To think you can pass the bill onto someone else without them complaining is ignorance. To pass the cost to those who have money (by earning) is robbery. Someone else will always have more money than you. That does not mean they should pay your bills when you are perfectly capable of living within your means and paying your way.
(for the lib nuts who will pounce) This is not a statement that poor people should just be left without money, etc. It is the gov/middle class wet dream that everything should be paid for by public money then cry when the bills go up. Somebody has to pay for this stuff but the people being complained about are the ones who employ us to take us out of poverty
Lower Corporation Tax but apply the new level to Gross revenue not Net then they can pay their Overseas minders whatever they like for the use of the Corporate Logo from what is left.
There is precious little I can offset against Income Tax so why should Corporations be any different?
@Barrie Shepherd
"apply the new level to Gross revenue not Net "
It's already done and called VAT.
Margaret Hodge blames self?
There are a few fundamental problems nicely avoided by Margaret Hodge presumably talking out of scope on the basis of publishing HM Revenue and Customs: Annual Report and Accounts 2011–12. Which is what the PAC she chairs does and not, for example, tax policy and regulatory matters.
Tax avoidance is and MUST be legal if Government is to use taxation to support other policies. Otherwise it would be illegal to use less energy to avoid the climate change levy - or presumably give up alcohol or smoking when one is feeling impoverished.
Taxation has rather more effects that raising revenue. Employees pay fairly enormous sums of tax (your rate may vary but add up your top level of paye taxtaion plus NI plus VAT as your marginal rate of taxation on new income - its not pleasant). Any effect on inward investment by multi national - say those doing R&D in the UK - could have severe impact.
But most of all if there are new regulations and bills required they can only come from Ministers and MPs - and Ms Hodge has been both for rather a long time whilst er her own company investments have been legally avoiding taxation for rather a while.
Margaret Hodge = Hypocrite of the highest order
Margaret Hodge has some balls to complain about companies not paying their "fair share" of tax when her family's company doesn't either. And she has a not unsubstantial 9% of shares in this global tax avoiding company. She personally has only 1% because she has but the rest into a trust fund to avoid tax. Inheritance tax this time. So she's tax avoiding to the maximum allowed by law, just like all the companies she's naming and shaming.
Is it right that politicians and other groups with vested interests whip up a public frenzy about companies' tax affairs when said companies are following the law to the letter. Are we going to be ruled by the mob or law?
Basically they are saying look over there, look at the dodgy company, ignore what I'm doing and what I'm saying as all I want is more of your tax money to spend on my favourite pet project (usually giving money to some group who will vote for them).
Re: Margaret Hodge = Hypocrite of the highest order
Or... She is arguing for a strengthening of the law, which will directly cost her, because it's the right thing to do.
It's all how you look at things, you see a hypocrite, I see someone who is trying to do the right thing. I don't suppose she has control of the financial operations of companies of which you refer.
Re: Margaret Hodge = Hypocrite of the highest order
"She is arguing for a strengthening of the law, which will directly cost her, because it's the right thing to do."
She can argue for changing the law without taking advantage of a law she feels is wrong.
I will not be lectured on tax by a bunch of thieving scum which, as the expenses episode demonstrated, do everything they can to avoid paying tax or maximizing their take.
Re: Margaret Hodge = Hypocrite of the highest order
Like I said: It's highly likely that she doesn't have any financial control over these companies. You also don't know what goes on within them and if she has tried to get them to pay more tax.
As for calling all MPs thieving scum, there are many, indeed the majority, of MPs who had nothing to do with scamming expenses. Also, the expenses scandal had absolutely nothing to do with tax avoidance, the clue is in the name "expenses scandal".
If you paint everyone with the same brush and expect such low standards, you'll never see MPs, like both of the Reading MPs who didn't claim expenses for their travel and didn't have a second home in London, although other MPs who lived nearer did.
Re: Margaret Hodge = Hypocrite of the highest order
"You also don't know what goes on within them and if she has tried to get them to pay more tax."
I do know she has put the majority of her share holding in a tax efficient trust to once again avoid tax.
"Also, the expenses scandal had absolutely nothing to do with tax avoidance"
Apart from the MP's who repeatedly flipped houses to avoid paying capital gains tax. And even the ones who didn't avoid tax they sought to immorally abuse the rules to take taxpayers money.
Is Starbucks in the UK Starbucks?
Or is it some other company trading as Starbucks?
If it is the same company, why does it have to pay IP royalties to itself?
Surely there is a loop-hole that can be closed fairly easily.
During the 'trial', I found it quite amusing when the Strabucks man was asked if the coffee ever went to Switzerland before it came here.
I wonder if the Starbucks coffee that is sold in Costco ever went through the same shenanigans - or does Costco just ship it over from the US like the other coffees they sell.
I don't recollect having used a Starbucks now for about 5 years - there are better coffe shops everywhere.
While they're at it...
It might be a good idea too to bring in legislation to ensure that only UK-based data controllers can operate a .co.uk website. At the moment we have a situation where Amazon are asking their Kindle Fire customers to pay £10 to opt-out of of direct marketing being served to their new Kindle. But as UK data subjects we all have a statutory right to opt-out of direct marketing with a company under section 11 of the DPA98. How does Amazon get around this? They operate the Amazon.co.uk website with a European-based data controller rather than a UK-based one and thus deny us of our rights.
If they specifically wish to sell to UK consumers then Amazon should honour our data protection rights in my opinion and appoint a UK-based data controller.
Re: While they're at it...
didn't know about that one.
any other examples of businesses charging over-the-odds administration fees for what is effectively clicking a tickbox?
Do any of the foaming tendency have an ISA? Or Premium Bonds? Contribute to a private pension?
Where's your sense of moral outrage now?
BBC Ticker headline
says Starbucks plans to change the way it allocates its costs for tax purposes.
They've finally woken up and smelled the coffee!
Paris, because "black coffee in bed".
What a load of b.
Amazon, Google, Starbucks and all other corporate entities have legal and moral responsibilities to their stackholders, and to the law of the land in which they operate. If that law says if is legal from them to pay 0.01% turnover in tax, then they have satisfied both requirements. However, if the press, who would like to distract you from their own woes, and politicians who made the laws in the first place, want to make a song and dance about the inequities of a system that treats the rich better then the poor, we just let them.
Why do we seem unable to comprehend that the press just want to sell ads, and politicians just want to sell votes, and consider everything they say and do, through that filter?
Could someone explain WHY...
I, as a company or private person, would pay X taxes when I an get away with X/2 taxes (insert any number you like) ?
Where do you think those 500£ 50" flatscreens come from ? Let me enlighten you : YOU can only buy that appliance (or any other you may want) at such a stupidly low price if it's made in a country with very low or no corporate tax by people making a buck a day with no health or dental plan, redundancy pay, unemployment benefits and/or other social protection.
So choose wisely.
Re: Could someone explain WHY...
I can try ...
Most people pay by PAYE (Pay As You Earn) and remember income tax is just one of many UK taxes (road tax, corporation tax, council tax, .... along with duties and National Insurance).
Most people avoiding tax payments legally are not on PAYE.
So the majority of wage earners are on PAYE and one's employer has assumed payment of income tax and contributions meaning you have no choice.
So as a PAYE taxpayer do you have any concessions?
No. You pay your tax in advance to the Treasury whereas a non-PAYE will probably pay tax a year in arrears.
You will not even gain any concessions for prepaying your tax burden and you might indeed overpay and the money is likely to sit with HMRC and the Treasury hoping you have overlooked the overpayment
Even utility companies grant concession to most (but not all) prepayment models.
As a UK PAYE taxpayer you are stuck with it m8.
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