On Monday, George Osborne, in a joint statement with German finance minister Wolfgang Schäuble to the G20, called for ‘concerted international cooperation to strengthen international standards for corporate tax regimes’. Osborne and Schäuble are calling on G20 countries to support the OECD’s work on ‘identifying possible gaps in the [international] standards as a first step in promoting a better way of dealing with profit shifting and the erosion of the corporate tax base at the global level.’
The statement explained that ‘Britain and Germany want competitive corporate tax systems that attract global companies to our countries, but also want global companies to pay those taxes. That is best achieved through international action in the G20 and other relevant international fora to ensure strong standards.’
The statement continued: ‘Britain and Germany back the OECD – BEPS (tax base erosion and profit shifting) initiative of the OECD and expect its first analysis report to the next G20 meeting in Russia in February 2013. Britain and Germany will continue to work together, and with our partners in the EU, G7 and G20, to maintain momentum on strengthening international standards.’
The joint statement was issued several days after a report broadcast on the BBC’s Newsnight programme which, according to reporter Joe Lynam, ‘seems to show that many of the largest UK multinationals here are paying only a fraction of the corporation tax that they might have paid, and it’s perfectly legal.’
In the studio discussion which immediately followed the report, exchequer secretary, David Gauke, defended the UK’s corporation tax system, saying that the government was strengthening HMRC’s ability to deal with transfer pricing abuse and ‘artificial diversion of profits’ out of the UK. It was important to remember that corporation tax is a tax on profits from activity conducted in the UK, he said.
But Newsnight presenter Gavin Esler said that for many people, the ‘scandal’ was not about what was illegal but what was permitted under the law. Some of the world’s biggest companies, including Coca-Cola and Intel, ‘apparently make massive profits in Britain but in some cases pay as little as 2% tax, while smaller British companies have been paying corporation tax at 26%’. The big companies are doing nothing illegal, he said. ‘That’s the point.’
Transfer pricing was the key, Lynam said. In general, the group company that controls valuable intangibles such as patents or trademarks bases itself in a low tax country. ‘From there it can bill its British sister company for permission to use those trademarks, or certain products,’ he said. The effect was to ‘magnify’ the profits in low tax countries and minimise them in Britain. The OECD’s rules on transfer pricing were designed to prevent abuse. But even the OECD admitted that ‘things are getting a bit out of control’, Lynam suggested.
Pascal Saint-Amans, director of the OECD’s Centre for Tax Policy and Administration, told the programme: ‘The concern is that there has been a shift towards aggressive tax planning, which may have been encouraged by the governments – let’s be fair – but which now needs to be stopped.
Giving evidence to the Public Accounts Committee on Monday, Lin Homer said that HMRC has limited power to rein in multinational companies that seek to minimise their UK tax bills.
‘All HMRC can do is to apply the laws and what I am acknowledging is that in an international setting multinational businesses can choose to some extent where some parts of their business are based and they can choose where some of their profits are based,’ Homer told the committee. As reported by the Financial Times (5 November), Margaret Hodge, chair of the committee, accused HMRC of ‘failing to put enough effort into making big companies pay their fair share, while small businesses were hassled over bills.’
MPs demanded to know why some companies were able to deduct royalty payments from their UK tax bills, with Deputy Chair, Richard Bacon MP, commenting that ‘the explanations did not seem credible to members of the public.’
Starbucks: 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 was ‘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.
Google: 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’.
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.’
Representatives from Google, Starbucks UK and Amazon are expected before the Public Accounts Committee next Monday afternoon, 12 November.
On Monday, George Osborne, in a joint statement with German finance minister Wolfgang Schäuble to the G20, called for ‘concerted international cooperation to strengthen international standards for corporate tax regimes’. Osborne and Schäuble are calling on G20 countries to support the OECD’s work on ‘identifying possible gaps in the [international] standards as a first step in promoting a better way of dealing with profit shifting and the erosion of the corporate tax base at the global level.’
The statement explained that ‘Britain and Germany want competitive corporate tax systems that attract global companies to our countries, but also want global companies to pay those taxes. That is best achieved through international action in the G20 and other relevant international fora to ensure strong standards.’
The statement continued: ‘Britain and Germany back the OECD – BEPS (tax base erosion and profit shifting) initiative of the OECD and expect its first analysis report to the next G20 meeting in Russia in February 2013. Britain and Germany will continue to work together, and with our partners in the EU, G7 and G20, to maintain momentum on strengthening international standards.’
The joint statement was issued several days after a report broadcast on the BBC’s Newsnight programme which, according to reporter Joe Lynam, ‘seems to show that many of the largest UK multinationals here are paying only a fraction of the corporation tax that they might have paid, and it’s perfectly legal.’
In the studio discussion which immediately followed the report, exchequer secretary, David Gauke, defended the UK’s corporation tax system, saying that the government was strengthening HMRC’s ability to deal with transfer pricing abuse and ‘artificial diversion of profits’ out of the UK. It was important to remember that corporation tax is a tax on profits from activity conducted in the UK, he said.
But Newsnight presenter Gavin Esler said that for many people, the ‘scandal’ was not about what was illegal but what was permitted under the law. Some of the world’s biggest companies, including Coca-Cola and Intel, ‘apparently make massive profits in Britain but in some cases pay as little as 2% tax, while smaller British companies have been paying corporation tax at 26%’. The big companies are doing nothing illegal, he said. ‘That’s the point.’
Transfer pricing was the key, Lynam said. In general, the group company that controls valuable intangibles such as patents or trademarks bases itself in a low tax country. ‘From there it can bill its British sister company for permission to use those trademarks, or certain products,’ he said. The effect was to ‘magnify’ the profits in low tax countries and minimise them in Britain. The OECD’s rules on transfer pricing were designed to prevent abuse. But even the OECD admitted that ‘things are getting a bit out of control’, Lynam suggested.
Pascal Saint-Amans, director of the OECD’s Centre for Tax Policy and Administration, told the programme: ‘The concern is that there has been a shift towards aggressive tax planning, which may have been encouraged by the governments – let’s be fair – but which now needs to be stopped.
Giving evidence to the Public Accounts Committee on Monday, Lin Homer said that HMRC has limited power to rein in multinational companies that seek to minimise their UK tax bills.
‘All HMRC can do is to apply the laws and what I am acknowledging is that in an international setting multinational businesses can choose to some extent where some parts of their business are based and they can choose where some of their profits are based,’ Homer told the committee. As reported by the Financial Times (5 November), Margaret Hodge, chair of the committee, accused HMRC of ‘failing to put enough effort into making big companies pay their fair share, while small businesses were hassled over bills.’
MPs demanded to know why some companies were able to deduct royalty payments from their UK tax bills, with Deputy Chair, Richard Bacon MP, commenting that ‘the explanations did not seem credible to members of the public.’
Starbucks: 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 was ‘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.
Google: 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’.
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.’
Representatives from Google, Starbucks UK and Amazon are expected before the Public Accounts Committee next Monday afternoon, 12 November.
