Are multinationals starting to lose the tax battle?
The battle between the world's leading multinationals and national governments looking for tax revenue has heated up over the past week following the row surrounding Google (NASDAQ: GOOGL)'s bill in the U.K. and a pan-European push to combat corporate tax avoidance.
The new European Union proposals announced Thursday include legally binding measures to block the most common methods used by companies to avoid paying tax and help circulate tax information on multinationals among countries. They come at a time when U.S. multinationals, including Apple (NASDAQ: AAPL), Amazon (NASDAQ: AMZN), Starbucks (NASDAQ: SBUX) and Google, are facing a renewed storm of criticism for their tax practices in Europe.
"Billions of tax euros are lost every year to tax avoidance — money that could be used for public services like schools and hospitals or to boost jobs and growth. Europeans and businesses that play fair end up paying higher taxes as a result. This is unacceptable and we are acting to tackle it," Pierre Moscovici, a European Commissioner and former French finance minister, said in a written statement on the new measures on Thursday.
Angel Gurria, the secretary-general of the Organisation for Economic Co-operation and Development (OECD), welcomed the proposals, which came one day after 31 countries agreed to greater cross-border cooperation on tax matters.
The OECD, which works with major economies on policy, estimates that $100-240 billion annually is lost from governmental corporate income tax revenue when companies shift profits between countries to benefit from differences in tax rules.
Tech multinationals such as Apple and Facebook (NASDAQ: FB) have been the target of particular criticism for their practice of setting up international headquarters in low-tax countries such as Ireland and Luxembourg and funneling their international revenues through them to avoid a hefty bill.
"Implementing the international standards against base erosion and profit shifting developed by the OECD and the G-20 will help put an end to double non-taxation, facilitate a better alignment of taxation with economic activity and value creation and render many of the most aggressive tax planning structures ineffective. We welcome the Commission's proposal, which… will help bring about greater transparency, fairer competition and a more certain tax environment for the benefit of all businesses across Europe," Gurria said in an emailed statement on Thursday.
A deal announced last week that would see Google pay £130 million ($187 million) in back taxes to 2005 to British authorities is under criticism for its apparent leniency.
The U.K.'s opposition Labour Party has called for an inquiry into whether the deal represents value for money. Meanwhile, the Scottish National Party has complained to EU antitrust regulators, who have agreed to investigate the deal, according to Reuters.
Google turned over £642 million in 2013 in the U.K., on which it was taxed £20.4 million, according to its filing to Companies House, the U.K.'s register of companies. Google is yet to file for 2014 or 2015.
Google has hit back at suggestions it had underpaid tax.
"Governments make tax law, the tax authorities independently enforce the law, and Google complies with the law," Peter Barron, Google's European public affairs chief, a spokesperson said in a statement emailed to CNBC on Thursday.
The company is set to give evidence before the U.K.'s Public Accounts Committee on February 11.
Google is not getting an easy ride elsewhere in Europe. Reuters reported on Thursday that Italian finance police believe that Google evaded 227 million euros ($248 million) in taxes in Italy between 2009 and 2013, citing unnamed sources.
U.S. Fortune 500 companies hold more than $2.1 trillion in accumulated profits offshore for tax purposes, according to a report from the U.S. Public Interest Research Group, published in October.
Last month, Apple agreed to pay a 318 million euro fine to settle a long-running investigation into its tax practices in Italy.
The tech giant is under investigation by European regulators, who have accused it of using subsidiaries in Ireland to reduce taxes on revenue generated outside the U.S. Analysis from Bloomberg Intelligence suggests the iPhone maker could owe more than $8 billion in back taxes as a result of the probe, which dates back to 2014.
Apple CEO Tim Cook described the accusation that the company was avoiding paying taxes on overseas profits as "political crap," in a television interview last month.
American Innovation Matters, a lobby group set up in September whose members include Apple, Facebook, Adobe (NASDAQ: ADBE), Oracle (NYSE: ORCL), Boeing (NYSE: BA) and Cisco (NASDAQ: CSCO), has argued that the U.S. needs to reform its own tax system to incentivize companies to keep their research and developments operations at home, rather than looking abroad.
There are concerns that an EU investigation of the U.K.'s Google tax deal could inflame British resentment of Brussels in the build-up to a referendum in Britain on leaving the bloc.
The EU and its executive arm, the Commission, already has a bad reputation in the U.K. for meddlesome regulation and halting progress with "red tape."
On Thursday, the U.K.'s Institute of Economic Affairs said that the EU's proposed measures would increase legislative complexity.
"If adopted, the Commission's proposals will add new rules to already hugely complex national tax codes — running to 20,000 pages in the U.K. — and introduce uncertainty about the legality of existing tax treaties," Diego Zuluaga, a financial services research fellow, said in a statement emailed on Thursday.
"It is delusional to think that the current system of international taxation can be saved by introducing more complexity. It is distortionary, it is unfair and it belongs to the past," he later added.
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