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MPs set to question Google and Starbucks over UK taxes

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MPs on the Public Accounts Committee are set to demand that Google and Starbucks executives give evidence next Monday in response to recent controversy about the companies’ UK tax affairs.

‘Members of the influential committee agreed on Monday evening to call in the two companies to give evidence at a session into HMRC where inspectors will be asked about their contributions to the exchequer,’ the Financial Times reported last night.

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‘We want to ask them for an opportunity to explain why they don’t pay proper levels of tax in the UK,’ PAC chairman Margaret Hodge said. The FT noted that the move ‘marks a cranking up of the political pressure on large international conglomerates over the amount of tax they pay in this country, after months of revelations about low tax rates enjoyed by some groups’.

HMRC has said in response to several recent press stories that it makes sure that ‘multinationals pay the right tax to the UK in accordance with UK tax law’.

As Tax Journal reported last week, some news stories have alleged tax avoidance on the basis of estimates of the tax that would be payable if UK tax liability was based on sales to UK customers.

In an issue briefing HMRC said it was ‘alive to the risk’ of avoidance by multinationals. It set out to explain that a company paying less corporation tax than might be expected is not necessarily engaging in tax avoidance.

The UK corporation tax liability depends on what business operations the company carries on here, not on the level of its sales to UK customers, HMRC said. ‘A company which is not resident in the UK does not have to pay UK corporation tax on its trading profits, unless it is trading through a branch in the UK. Having UK customers is not the same as having a branch in the UK.’

Chris Morgan, head of tax policy at KPMG in the UK, told Tax Journal earlier this week: ‘It’s good that there is a debate on tax going on but it’s a shame that much of it is partial or even ill-informed; corporation tax is paid on profits, not sales, for a start.’

Tim Johnson, managing director of American UK Tax Solutions, suggested on Twitter today that the PAC needed to ‘get properly briefed on basics of international corporate tax before [Monday’s] meeting’.


Reuters reported earlier this month that Starbucks had reported no profit in the UK and paid no corporation tax for the last three years on sales of £1.2bn, while the company had been telling investors that the UK business as ‘profitable’. Since it opened in the UK in 1998, the company had ‘racked up over £3bn in coffee sales, and opened 735 outlets but paid only £8.6m in income taxes,’ Reuters said. The report suggested that royalty payments, transfer pricing and interest paid to group companies accounted for the apparent disparity.

Last week, however, Starbucks chief executive officer Howard Schultz said in a message posted on the company’s website that ‘Starbucks has never avoided paying taxes in the UK’.

The company would ‘continue to respectfully engage in any dialogue HMRC officials would like to have with us’, Schultz added, but he pointed out that UK corporation tax is based on taxable profits.

‘Regrettably, Starbucks has only recorded a profit for UK tax purposes three times in the past 14 years (2006-2008),’ he said.

Differences in reporting requirements between the UK and US meant that there had been instances when the group had ‘communicated to shareholders that the UK has been profitable, albeit a small profit, while at the same time in the UK we had no taxable income to report’.


In August, a Daily Telegraph report claimed that ‘anger over the amount of tax paid by Google in the UK could escalate after documents showed the web giant contributed just £6m to the exchequer in 2011 on UK turnover of £395m’. The Independent reported that ‘anger is growing over the revelations that a complex series of transactions sees Google move most of the money it makes into the tax haven Bermuda’.

The Telegraph noted that Eric Schmidt, Google’s executive chairman, had previously defended the company’s UK tax affairs: ‘We could pay more tax but we would have to do so voluntarily,’ he said.

A Google spokesperson said at the time: ‘We make a substantial contribution to the UK economy through local, payroll and corporate taxes. We also employ over a thousand people, help hundreds of thousands of businesses to grow online and invest millions supporting new tech businesses in East London. We comply with all the tax rules in the UK.’

Last night’s FT report carried a virtually identical statement from Google, and said: ‘Google UK reported turnover of £396m for 2011, on which it made a £24m loss after incurring a cost of £51.45m relating to shares given to employees. It reported a tax charge of £3.5m.’