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.

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