U.K. Slams ‘Immoral’ Tax Practices of Multinational Companies

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Andrew Winning / Reuters

A barista's apron hangs on a peg in Starbucks' Mayfair Vigo Street branch in central London on Sept. 12, 2012

A group of British lawmakers has released a report accusing multinational companies Amazon, Google and Starbucks of “immorally” using tax practices that allegedly allow them to “pay little or no corporation tax” in Britain.

The report — as well as the judgment — stems from a parliamentary hearing on Nov. 12, where executives from the three companies faced the Public Accounts Committee (PAC), a parliamentary group tasked with overseeing government accounts and ensuring that public spending is handled honestly. At the time, committee chairwoman and British MP Margaret Hodge told Matt Brittin, Google’s vice president for Europe, “We’re not accusing you of being illegal, we’re accusing you of being immoral.”

(MORE: How U.S. Firms Like Google and Amazon Minimize their European Taxes)

The PAC report, released on Dec. 3, has echoed and extended that judgment to all three companies. “We were not convinced that their actions, in using the letter of tax laws both nationally and internationally to immorally minimize their tax obligations, are defensible,” it reads.

Starbucks, which has been operating in Britain for 15 years, hasn’t paid corporate tax in the country for the past three years, the committee heard from Starbucks’ chief financial officer Troy Alstead. Explaining that the company’s European base was in the Netherlands and pays tax only after paying royalty fees to its Dutch headquarters, Alstead said Starbucks hasn’t turned a profit in its U.K. shops for years and therefore wasn’t required to pay corporation taxes. Alstead said at the hearing, “We have had profitability challenges unfortunately, very serious ones, but nothing to do with tax avoidance.” A spokesperson for Starbucks later confirmed to TIME that the company wasn’t turning a profit in the U.K., though “we would very much like to and are moving in the right direction.” The MPs on the committee weren’t satisfied with Alstead’s testimony, however. The report says, “We found it difficult to believe that a commercial company with a 31% market share by turnover, with a responsibility to its shareholders and investors to make a decent return, was trading with apparent losses for nearly every year of its operation in the U.K.”

(MORE: The $7 Cup of Starbucks: A Logical Extension of the Coffee Chain’s Long-Term Strategy)

After the PAC hearing and the subsequent negative media attention, Starbucks announced on Dec. 1 that they are currently reviewing their tax practices in Britain, saying in a release, “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 U.K.”

The committee’s report also deemed that Amazon executive Andrew Cecil, the European director of public policy, was “evasive and unprepared to answer legitimate questions on the company’s structure.” While Amazon “subsequently provided the information” to the committee, the report said the company reported turnover of more than $330 million in the U.K., on which it paid “only” $2.9 million in taxes, as most of the company’s European sales are taxed in Luxembourg where its E.U. operations are based. Amazon said in a statement that the company “pays all applicable taxes in every jurisdiction that it operates within,” and they “have a single European headquarters in Luxembourg with hundreds of employees to manage this complex operation.”

As for Brittin, he told the committee that Google’s European operations are based in the company’s Dublin headquarters and are therefore taxed according to Ireland’s low rates. “Like any company, you play by the rules, manage costs efficiently to offer fair value to shareholders,” he told MPs. “We pay the tax we are required to pay in every country in which we operate.”

According to Nicholas Shaxson, author of Treasure Island: Tax Havens and the Men Who Stole the World, it’s standard practice for multinational companies to set up shop in countries like Ireland or Luxembourg where low tax rates are the standard. These companies are then able to claim profits in the low-rate countries, meaning “multinational corporations can cut their bills down to zero or close to zero.” According to Shaxson, it’s a flaw in the international tax system.

(MORE: Tax the Rich? French and British Leaders Spar over Plans to Make Wealthy Pay Up)

Now some countries are taking a closer look and a harder line on the way that tax system works. France recently slapped Amazon with a $252 million bill for unpaid taxes and penalties. “We disagree with the proposed assessment and intend to vigorously contest it,” the company reported in its third-quarter results filed in October. And last week, Italian police launched an investigation into what Google pays in taxes in the country. The search giant told the Guardian, “It is normal for a company to be subject to tax inspections, and we have been working with the Italian authorities for some time.”

The PAC’s report includes criticism of Britain’s own HM Revenue & Customs (HMRC) because “apparently, lenient treatment is given to big corporations” when it comes to taxes. Describing the decrease in that past year of corporation-tax revenue in Britain of $10 billion, the report states, “We were not sufficiently convinced by [HMRC’s] assertion that it was pursuing all the tax due from big businesses given the reduction in corporation-tax revenue from last year.”

U.K. Chancellor George Osborne also announced that the government would provide the HMRC with $124 million solely for the purpose of pursuing wealthy and corporate-tax avoiders. On Dec. 3, two days before he’s scheduled to address Parliament on Britain’s economy, Osborne said in a statement, “We are determined to tackle this problem, and HMRC are making good progress, but we are giving them additional tools to bring in more.” The government has said it hopes the new strategy on tackling tax avoidance would help them recoup $3 billion in unpaid taxes.

MORE: Europe’s Fiscal-Crisis Measures Are Working … Sort Of

14 comments
frokn
frokn

Immoral...... isn´t that the pot calling the kettle black?

GaryRMcCray
GaryRMcCray

We in the US are also the recipients of giant corporations who use their international affiliations to maximize their profits at everybody's expense.

Given the incentives permitted / allowed and even encouraged, to not expect highly competitive business's to take advantage of every last one of them is ludicrously naive.

Of course they are immoral, it is an immorality you have made available to them and which helps them profit, the immorality is really yours for allowing it to take place.

Furthermore if your or our government were being judged on the "morality" of their acts I really don't think Amazon could hold a candle to them.

Talk about the pot calling the kettle black.

What hypocrites!

BoVanLee
BoVanLee

The UK has the same tax problems we have in the U.S.  Too many loopholes allowing people to not pay taxes.

JohnDavidDeatherage
JohnDavidDeatherage

Lawmakers create complicated tax laws full of loop holes.... and then are upset that corporations find and use the loop holes?  Seems Kafkaesque....

LizHa
LizHa

The nerve of them, creating all those tax paying jobs and making money. I think the UK should throw them out on their duff, taking all those jobs with them.  (it is utterly breathtaking how devious politicians are and how they pander to the stupid they helped create).

TheScribe56
TheScribe56

Humm, imagine that, using questionable loopholes to avoid paying taxes may be legal, but is immoral?  How unamerican.  Expecting a company that's making millions of dollars to pay it's fair share, even the case of a national financial crisis is really asking too much of corporations.    How are they gonna create all those minimum wage part time, no benefits jobs if they gotta pay their taxes too?  Poor babies.

RadomírPleskač
RadomírPleskač

So according to these leftists it is immoral not to let government to steal fruits of your labor ? Keeping the fruits of your labor is considered greedy, while if the government takes it from you by force that is considered good. And if politician spend your money to give out goodies to get reelected, that is considered as "solidarity".....Damn you commie double speakers - violence is the only thing you promote.

Robert2011GB
Robert2011GB

Multi-nationals who don't pay their corporation tax are just as immoral as the baby momma welfare queens.

Go on then Google, Amazon, Starbucks, Republicans - who exactly is supposed to pay for the Army, Navy, Marines, Air Force and Police that you love so much, if the corporations shirk their responsibilities and avoid their taxes and follow Mitt in hiding money in the Cayman Islands?

The Middle Class - that's who!

The Republicans are the greatest enemy of the Middle Class in this country.

elcidharth
elcidharth

Republican party encourages these very corporations named to not pay their due corporate taxes. Over the so called, Fiscal Cliff issue, alone, not taking almost year long presidential and Congressional elections, the same party candidates assured their big money supporters that when they get elected, they would see that not one single penny would be taken away from the super rich individuals and corporations.

It seems Great Britain and Europeans see the shamelessness of the multinationals.

American tax laws, both current and the past are hammered to get more tax concessions to the multinationals under various state and federal tax systems. The so called 'loop holes,' are fashioned by both parties.

Last year one failed movement, Occupy Wall Street, raised few eyebrows and stiff official rebuke, not making any difference. The participants were charged with littering parks and summarily evicted, all under the watchful media, mostly owned by supporters of less taxes for the rich.

...and I am Sid Harth@mysistermarilynmonroe.com

RadomírPleskač
RadomírPleskač

@TheScribe56 Asking somebody for money with a gun in your hand is not moral (that is what taxes are - you don't pay you get thrown in a cage, you resist you get murdered and your killers are honored). And your own need/incompetence or whatever you wish to do with that money doesn't change that one iota.What is "fair" share. Do you consider somebody taking half of the fruit of your labor without your consent fair in any way?

Rachel421
Rachel421

@RadomírPleskač  

When corporations avoid paying taxes, who do you think picks up the tab?  "Income distribution" has long been a complaint on the right - yet they don't quite manage to complain when the income distribution happens upward, with working class Americans having to pay more than their fair share in order to cover for greedy multi-million dollar corporations.  

Robert2011GB
Robert2011GB

@RadomírPleskač Were you born with a hole in your head?

Go on then tell us - if everybody avoids taxes then who pays for the Army? Go on who? And the Navy? And the Marines? And the Air Force and the Police? Go on tell us whu pays for them?

Avoiding taxes is the same as theft.

TheScribe56
TheScribe56

@RadomírPleskač @TheScribe56 Why you complaining to me?  I said I think it's terrible to expect a company to pay it's taxes, right up there with murder or false imprisonment as you point out.  They should get police and fire protection for free, and the armed forces should defend their freedoms for free.  Roads and bridges that get their employees to work shouldn't be their responsibility.  I could go on, but you already know this, Freedom should be free, or at least someone elses responsibility.