3 December 2012 Last updated at 05:44 ET
Global firms in the UK that pay little or no tax are an “insult” to British businesses, a committee of MPs says.
Public Accounts Committee chairwoman Margaret Hodge said HM Revenue and Customs (HMRC) needed to be “more aggressive and assertive in confronting corporate tax avoidance”.
Multinationals such as Starbucks and Amazon have come under fire for paying little or no tax.
They generate UK sales of hundreds of millions of pounds.
Starbucks, for example, sold nearly £400m worth of goods in the UK last year, but paid no corporation tax at all, because much of the money it earns in this country is transferred to a sister company in the Netherlands in the form of royalty payments.
HMRC said it already ensured that international companies paid the tax due “in accordance with UK tax law”.
UK-based companies pay corporation tax on their taxable profits wherever they are made. Companies based outside the UK must pay tax on profits made in this country.
Multinationals in the tax spotlight
Starbucks’ UK sales last year were £400m but much of its earnings are paid as royalties to another part of the company.
Amazon generated sales of more than £3.3bn in the UK last year but paid no corporation tax on any of the profits, and is under investigation by the UK tax authorities, according to the Guardian newspaper.
Apple paid less than 2% corporation tax on its profits outside the US, paying $ 713m (£445m) on foreign pre-tax profits of $ 36.8bn.
Google’s UK unit paid £6m to the Treasury in 2011 on UK turnover of £395m, according to the Telegraph newspaper.
Source: Various
The influential committee’s report comes after it took evidence in November from executives from Starbucks, Google and Amazon about the amount of corporation tax the companies have paid in the UK.
‘Evasive evidence’
Margaret Hodge told the BBC that there was a danger corporation tax was becoming “voluntary” and that this had to change.
“These global companies are making money in the UK. All we are saying is that if you have economic activities in the UK you are making profits and tax is payable on that,” she said.
It emerged on Sunday that coffee shop chain Starbucks is in talks with HMRC about the amount of tax it pays.
Meanwhile, Chancellor George Osborne will unveil later details of £154m of funding to help tackle tax avoidance and evasion, amid public concern over the tax affairs of major international companies and wealthy individuals.
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Although they employ many thousands of people in Britain, it is unclear whether collectively they are net creators or destroyers of employment”
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The money will be used to take on extra staff to investigate high earners who aggressively avoid or evade paying tax and global firms that use legal loopholes to move profits out of the UK.
The funding is expected to help bring in about £2bn a year for HMRC.
In the report, Mrs Hodge said the level of tax taken from multinational firms with large UK operations was, “outrageous and an insult to British businesses and individuals who pay their fair share”.
Public Accounts Committee chairwoman Margaret Hodge: “It is time for HMRC to get a grip”.
“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.
“HMRC should be challenging this, but its response so far to these big businesses and their aggressive tax planning has lacked determination and looks way too lenient. Policing the tax system must be at the heart of what HMRC does.
An HMRC spokesman said: “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 enquiries alone.”
‘Breathtaking hypocrisy’
Analysis
It is worth remembering that corporation tax is not the only tax that companies pay. Corporation tax does raise £50bn in the UK, but other taxes that cannot be avoided so easily include VAT; then there is the business rate, which raises some £25bn a year. The Institute for Economic Affairs says that is enough to pay for the secondary education system and the police and the fire service.
Also, companies pay National Insurance contributions for every worker they hire and fuel duty and vehicle excise duty which are one of the biggest revenue earners for the government.
That doesn’t mean that foreign companies aren’t doing their best to avoid paying corporation tax on the profits they make here, but then UK companies operating in France, China or the US are probably doing much the same there.
Laws on corporate taxation are extremely complex and often part of internationally negotiated treaties, one reason they are difficult to change and why companies have become very good at exploiting every legitimate and legal loophole that they can.
In a statement to coincide with the committee’s report, Amazon said it paid all applicable taxes in every jurisdiction that it operated in: “We have a single European headquarters in Luxembourg with hundreds of employees to manage this complex operation.”
Starbucks said in a statement: “We have listened to feedback from our customers and employees, and understand that to maintain and further build public trust we need to do more.
“As part of this we are looking at our tax approach in the UK. The company has been in discussions with HMRC for some time and is also in talks with the Treasury.”
‘Small fry’
The War on Want charity, which is campaigning for more to be done to tackle tax avoidance, accused the government of “breathtaking hypocrisy”.
It said: “Osborne and Cameron are happy to talk tough on tax. But, in reality, their plans will only go after the small fry on the fringes, while giving a green light to multinationals like Amazon, Google and Starbucks to continue avoiding billions in tax.”
Heather Self, a tax expert, told the BBC assessing tax for major companies was not simple.
“If you buy a book from Amazon you are actually buying from a Luxembourg company,” she said. “It decides how many books to buy and at what price they sell them for. All you have in the UK is a warehouse, a very big warehouse that employs a lot of people but that is all it does. The risk is taken in Luxembourg.
“Profits paid here are for the activities it undertakes here and that is not highly profitable. It is not as simple a situation as the Public Accounts Committee likes to make out sometimes.”
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