Deloitte’s head of tax policy, Bill Dodwell, has denied that accountants are ‘complicit’ in profit shifting by multinationals using tax havens.
During a BBC interview Lord Myners accused accountants and lawyers based in ‘massive offices’ in places such as the Cayman Islands and Luxembourg of facilitating unfair competition and the ‘leeching of tax from developed countries into low tax offshore havens’.
Lord Myners was financial services secretary to the Treasury in Gordon Brown’s Labour government. The interview was broadcast on BBC Radio 4's Today programme hours before senior executives from Google, Starbucks and Amazon appeared before the Commons public accounts committee on 12 November.
John Humphrys asked Dodwell: ‘How do they get away with it?’
Dodwell said: ‘Companies are taxed on the activities they carry on in the countries where they operate, and many overseas multinationals have their main activities in their home country, so much of their technology is designed and built and written in the US, for example.’
Humphrys replied: ‘Google sells adverts here, Starbucks sells coffee here, Amazon sells books here. Why aren’t they taxed on the profits they make from those sales?’
Starbucks had already said it was making losses in the UK – it had pointed to very high property costs – and the companies probably had different stories to tell, Dodwell said. The companies’ UK tax contributions were the result of the way in which the international system of taxing companies’ profits was designed.
‘It’s designed to say that if you carry on activities in a country, that’s the country that should tax them.’
But Myners claimed that Dodwell’s explanation was ‘an apology for the industry of tax avoidance’.
Starbucks paid ‘large’ royalty payments for the use of the Starbucks brand and image, he said. ‘They buy their coffee through offshore centres from the developing countries and then they charge it on at a higher price to a market like the UK, so they ensure they don’t make a taxable profit in the UK.’
The royalty was, he said, the result of a ‘negotiation between their left and their right hand, overseen by extremely expensive accountants and lawyers who have massive offices in places like the Cayman Islands and Luxembourg in order to facilitate the leeching of tax from developed countries into low tax offshore havens’.
Dodwell said it was ‘simply not true to say that profits are “leeched” off into tax havens like the Cayman Islands’.
‘Profits are taxed where the activities are based. If there are no activities there, then there is no reason for a tax deduction to be given by the UK for payments made there.’
Myners said an activity based on Luxembourg ‘may often just be a filing cabinet with an agreement in it’. He called for a move to a sales tax or ‘something else’, and welcomed George Osborne’s joint statement with the German finance minister Wolfgang Schäuble, at the recent G20 meeting in Mexico, ‘that they were going to take action’.
Myners added: ‘It’s about time accountants recognised that they have a social responsibility to ensure that companies make a fair contribution to taxes in the countries where their activities lie.’
Dodwell, who is a member of Tax Journal’s editorial board, said he agreed that companies should make a fair contribution ‘based on where there activities actually are’. A filing cabinet was not an activity, and ‘you wouldn’t get a tax deduction’ for it. Activities were ‘people-based’, he said.
People did pay for brand value, and there were internationally agreed norms for franchise payments, for example, so it was ‘not so hard to work out’ a fair – not excessive – market rate.
A recent issue briefing published by HMRC explained that under current tax law, companies are ‘required to pay corporation tax in the country where they carry on the economic activity that generates their profits, not where their customers are located’.
Andrew Cecil, Amazon’s director of public policy, told the public accounts committee that sales on Amazon.co.uk ‘were actually made by [Amazon’s] European business, which is based in Luxembourg and employs 500 people’. Amazon's UK business employed about 15,000 people and operated as a service provider.
Starbucks chief financial officer, Troy Alstead, told the committee that Starbucks UK had made a profit in only one of the last 15 years. Royalty payments were made a regional headquarters in Amsterdam, and coffee beans were bought by a Swiss entity and sold out to subsidiary companies at a 20% mark-up.
Mark Brittin, chief executive of Google UK, said the company had bases in Ireland and Bermuda to take advantage of low corporate tax rates. The heart of Google’s business was California, where it had 17,000 engineers.
Since the public accounts committee hearing, leaders of two UK retail businesses have complained of unfair competition and a third has suggested that consumers should use ‘the vote that you make with your wallet’ to bring about change.
David Cameron has announced that next year’s G8 summit in Northern Ireland will address the ‘growing problem’ of tax havens, and a Conservative MP has written to the chief executives of all FTSE 100 companies seeking their support for country-by-country reporting.
Deloitte’s head of tax policy, Bill Dodwell, has denied that accountants are ‘complicit’ in profit shifting by multinationals using tax havens.
During a BBC interview Lord Myners accused accountants and lawyers based in ‘massive offices’ in places such as the Cayman Islands and Luxembourg of facilitating unfair competition and the ‘leeching of tax from developed countries into low tax offshore havens’.
Lord Myners was financial services secretary to the Treasury in Gordon Brown’s Labour government. The interview was broadcast on BBC Radio 4's Today programme hours before senior executives from Google, Starbucks and Amazon appeared before the Commons public accounts committee on 12 November.
John Humphrys asked Dodwell: ‘How do they get away with it?’
Dodwell said: ‘Companies are taxed on the activities they carry on in the countries where they operate, and many overseas multinationals have their main activities in their home country, so much of their technology is designed and built and written in the US, for example.’
Humphrys replied: ‘Google sells adverts here, Starbucks sells coffee here, Amazon sells books here. Why aren’t they taxed on the profits they make from those sales?’
Starbucks had already said it was making losses in the UK – it had pointed to very high property costs – and the companies probably had different stories to tell, Dodwell said. The companies’ UK tax contributions were the result of the way in which the international system of taxing companies’ profits was designed.
‘It’s designed to say that if you carry on activities in a country, that’s the country that should tax them.’
But Myners claimed that Dodwell’s explanation was ‘an apology for the industry of tax avoidance’.
Starbucks paid ‘large’ royalty payments for the use of the Starbucks brand and image, he said. ‘They buy their coffee through offshore centres from the developing countries and then they charge it on at a higher price to a market like the UK, so they ensure they don’t make a taxable profit in the UK.’
The royalty was, he said, the result of a ‘negotiation between their left and their right hand, overseen by extremely expensive accountants and lawyers who have massive offices in places like the Cayman Islands and Luxembourg in order to facilitate the leeching of tax from developed countries into low tax offshore havens’.
Dodwell said it was ‘simply not true to say that profits are “leeched” off into tax havens like the Cayman Islands’.
‘Profits are taxed where the activities are based. If there are no activities there, then there is no reason for a tax deduction to be given by the UK for payments made there.’
Myners said an activity based on Luxembourg ‘may often just be a filing cabinet with an agreement in it’. He called for a move to a sales tax or ‘something else’, and welcomed George Osborne’s joint statement with the German finance minister Wolfgang Schäuble, at the recent G20 meeting in Mexico, ‘that they were going to take action’.
Myners added: ‘It’s about time accountants recognised that they have a social responsibility to ensure that companies make a fair contribution to taxes in the countries where their activities lie.’
Dodwell, who is a member of Tax Journal’s editorial board, said he agreed that companies should make a fair contribution ‘based on where there activities actually are’. A filing cabinet was not an activity, and ‘you wouldn’t get a tax deduction’ for it. Activities were ‘people-based’, he said.
People did pay for brand value, and there were internationally agreed norms for franchise payments, for example, so it was ‘not so hard to work out’ a fair – not excessive – market rate.
A recent issue briefing published by HMRC explained that under current tax law, companies are ‘required to pay corporation tax in the country where they carry on the economic activity that generates their profits, not where their customers are located’.
Andrew Cecil, Amazon’s director of public policy, told the public accounts committee that sales on Amazon.co.uk ‘were actually made by [Amazon’s] European business, which is based in Luxembourg and employs 500 people’. Amazon's UK business employed about 15,000 people and operated as a service provider.
Starbucks chief financial officer, Troy Alstead, told the committee that Starbucks UK had made a profit in only one of the last 15 years. Royalty payments were made a regional headquarters in Amsterdam, and coffee beans were bought by a Swiss entity and sold out to subsidiary companies at a 20% mark-up.
Mark Brittin, chief executive of Google UK, said the company had bases in Ireland and Bermuda to take advantage of low corporate tax rates. The heart of Google’s business was California, where it had 17,000 engineers.
Since the public accounts committee hearing, leaders of two UK retail businesses have complained of unfair competition and a third has suggested that consumers should use ‘the vote that you make with your wallet’ to bring about change.
David Cameron has announced that next year’s G8 summit in Northern Ireland will address the ‘growing problem’ of tax havens, and a Conservative MP has written to the chief executives of all FTSE 100 companies seeking their support for country-by-country reporting.
