The Public Accounts Committee (PAC) has published a report following the grilling of top executives at three multinational companies accused of evading full tax payments.
Representatives of Amazon, Google and Starbucks were brought before a select committee to explain how their organisational structures had enabled them to pay only small amounts of tax, despite the substantial sales they made in the UK.
In a response to the evidence presented by the three companies, PAC chair, Conservative MP Margaret Hodge, said that the lack of payments were an “insult” to taxpaying businesses and individuals in the UK.
“Global companies with huge operations in the UK generating significant amounts of income are getting away with paying little or no corporation tax here,” Hodge said. “This is outrageous and an insult to British businesses and individuals who pay their fair share.”
She added: “There is little credible information about what is going on. The evidence we took from large corporations was unconvincing and, in some cases, evasive. HMRC also lacked clarity when trying to explain its approach to enforcing the corporation tax regime”.
Hodge said that the “inescapable conclusion” is that some large multinationals are purposefully using structures to exploit tax legislation, moving profits offshore.
Amazon, for example, made over £3 billion last year, but paid almost no tax as it based its operations in the low tax country of Luxembourg. Amazon claims that its UK operation covers distribution and customer services, and therefore is not required by HMRC to pay more tax. At the committee hearing, Hodge said that the company misled its customers, with many believing that buying from Amazon.co.uk meant they were purchasing from a UK based arm of the company.
Starbucks was accused of manipulating its profits, with the company telling MPs that it had drawn a loss in the UK during all but one of the 14 years of operating in the UK. Despite such a performance the company has maintained a substantial presence in the UK. Hodge highlighted that the head of UK operation was given a promotion to the firm’s global operations in 2006 despite spearheading a seemingly unprofitable move into the UK.
Google’s operations were labelled the most difficult of the three to understand, with the company paying just £6 million in corporation tax on a £396 million turnover. The US firm bases its operations in Ireland, which critics claim makes use of the ‘double Irish’ tax loophole. Google has indicated in the past that it would be willing to pay more tax in the UK if required to by law.
The report makes recommendations that HMRC should be less lenient on the multinational companies. Hodge said that efforts so far had “lacked determination”.
“It [HMRC] must be more aggressive and assertive in confronting corporate tax avoidance,” Hodge added. “This is essential for the credibility of both the Department and the tax system”.
HMRC currently estimates the amount unpaid tax across the country at £32 billion.
The report claimed that the evasive strategies of large multinationals gave them an unfair advantage over UK businesses which are forced to pay corporation tax. Large UK companies such as Topshop, a British firm run by Sir Philip Green, have come under fire for paying too little tax. English Premier League clubs have also been accused of paying less than £3 million tax on over £150 million profits.
The US companies have come under pressure from other countries, too, with authorities in France investigating Google, while Australia has announced a crackdown on questionable tax practices by multinationals.
Following the PAC report, Chancellor George Osbourne announced that he would be investing more in enabling the Inland Revenue to clamp down on multinational firms.