This week saw something quite remarkable happen in the UK, as three of the most succesful companies in the world — Google, Amazon and Starbucks — were called in before the British Parliament's Public Accounts Committee and ordered to explain exactly why they paid such little tax.
How little tax exactly? According to Management Today, the three have taken in £3.1 billion ($4.9 billion) in the past three years, but have paid a total of £30 million ($47 million) corporation tax between them. One report from Reuters showed that Starbucks had paid no corporation, or income, tax in the UK in the past three years.
There's no suggestion that anyone is doing anything illegal: the companies are simply routing the profits from their UK enterprises to European companies with lower taxes. As Lord Myners, the former City minister, told the Telegraph on Sunday:
“Corporation tax for an MNC (multinational company) operating in the UK is close to being a voluntary payment. The problem is that the tax environment many MNCs are interested in is a zero tax environment.”
On the day, however, some of the explanations fell flat. Starbucks explained that they didn't make any money from their stores in the UK, prompting MP Austin Mitchell to ask whether the company is "either running the business very badly or there’s some fiddle going on". Amazon was unable to explain why it paid a greater portion of tax in Luxembourg (where it employs 500 people at its official headquarters) than in the UK (where it employs 15,000 people).
Google perhaps had the most haphazard argument, arguing that the main thrust of its economic activity was "innovation" — which takes place elsewhere. PaidContent's Robert Andrews pointed out one key flaw in the argument:
Few would question that the majority of Google’s magic is made in Mountain View. But, one year ago, Google made a song and dance about a new London engineering center it said was contributing to influential products including AdSense, Maps, Local, Chrome, Android and speech recognition.
While there Committee has taken no serious action as of yet, there is a sign that perhaps cash-strapped nations may be getting sick of all the taxes they are not being paid by international corporations. Britain and Germany last week announced plans to push the Group of 20 economic powers to end these loopholes in international law, and just today France demanded $252 million for back taxes, interest and penalties.
However, the European tax system is a complicated beast. For example, one of the sternest critics in the UK is Margaret Hodge, chairman of the Public Accounts Committee. Hodge may have some questions to answer herself, as the Daily Telegraph revealed last week that her own family owned shares in steel company Stemcor — a company that paid just £163,000 tax ($259,000) on revenues of more than £2.1 billion ($3.34 billion) in 2011.
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