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Peer calls for ‘total transparency’ on corporation tax

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Pressure is mounting on large multinationals to ‘pay their fair share of tax’ following new revelations about the amount of UK tax paid by eBay and Ikea, The Guardian reported yesterday. Lord Oakeshott, the Liberal Democrat peer, called for the chief executive of Starbucks to appear before a parliamentary committee to explain why the company paid ‘so little’ corporation in the UK after ‘notching up £1.2bn of sales’ here, the paper said.

Oakeshott, a former Treasury spokesman for the LibDems, said HMRC had to be ‘tougher’ in cracking down on tax avoidance. ‘What we need is total transparency on corporation tax actually paid each year by companies and detailed reasons why it is below the headline rate,’ he said.

The Daily Mail reported today that ‘the revelation that [Starbucks’] coffee shops have paid nothing whatsoever into the UK exchequer for three years achieved the unlikely feat of turning corporation tax into a national obsession’. It quoted the tax campaigner Richard Murphy, the director of Tax Research UK, as saying that the Starbucks issue was ‘a game changer’. Murphy called for country-by-country reporting of profits, adding that ‘secrecy hides what [companies] are doing. If they had to tell us, they would change their behaviour because they would be embarrassed.’

In a reference to the Reuters investigation into Starbucks’ tax arrangements, the Sunday Times noted at the weekend that the US-based coffee chain had ‘utilised a string of loopholes to pay only £8.6m in tax in Britain since opening its stores here 14 years ago and generating coffee sales of £3bn’.

The Financial Times quoted Jeremy Challender, co-owner of Prufrock – an independent coffee shop in London’s Leather Lane – as saying that the big coffee chains were not rivals ‘but he would prefer that his business was on an equal footing’. He added: ‘We don’t compete with the chains. But them not paying tax increases the burden on all small businesses in the UK and they already have advantages over independent businesses because of their buying power. It doesn’t seem fair.’

Starbucks chief executive Howard Schultz defended his company's UK tax payments, The Guardian reported on Saturday, and ‘said he would be happy to co-operate with any official investigation of the British unit's finances’. Schultz ‘denied shifting profits out of the UK unit into tax havens’, and told Reuters that ‘we don't pay [corporate] income tax because we are not making money [in the UK]’.

The House of Commons Treasury Committee will question tax experts and union officials tomorrow as part of an investigation into the ‘administration and effectiveness of HMRC’. The Public Accounts Committee is expected to question HMRC chief executive Lin Homer on 5 November ‘about the tax avoidance strategies being adopted by foreign companies’, the Sunday Times reported.


A Sunday Times investigation revealed that eBay, the US multinational that manages the online auction and shopping website, paid ‘barely more than £1m’ in UK corporation tax despite generating sales in the UK of almost £800m in a year.

The paper reported that ‘the American company legally channels payments through Luxembourg and Switzerland to avoid paying nearly £50m in tax in Britain’. It also reported that Ikea, the Swedish furniture chain, had ‘halved its corporation tax bill in the UK by siphoning off profits abroad in the form of royalty payments to a sister company’.

‘The use of such elaborate accounting techniques by the foreign-owned companies has angered both politicians and consumers,’ the Sunday Times said.

eBay was ‘structured in a way that allows it to slash its UK tax liability’, it explained. ‘Accounts filed in America by eBay Inc, the parent company, indicate that its British subsidiaries generated £789m in sales during 2010.’

The company’s UK shopping portal had ‘17m unique visitors a month’, the report said. ‘Using a group-wide profit margin of 23%, UK profits would have been £181m in 2010, the latest year for which accounts are available. At the time this would have produced a corporation tax bill of £51m. However, the amount of tax paid in total by eBay’s four main UK-based subsidiaries for that year was £1.2m.’

According to the report, the ‘disparity’ could be explained in part by the fact that ‘fees paid by sellers using the auction site in Britain are handed over to a related company in Luxembourg’. This means, the paper said, that ‘most sales are routed through a tax haven’. Accounts showed that eBay (UK), the main British subsidiary, ‘merely provides “services” to a company in Switzerland called eBay International AG’.

The Sunday Times quoted a spokesman for eBay as saying: ‘eBay Inc in Europe works with tax authorities and complies fully with all applicable tax laws and regimes – including national and internationally recognised rules.’


Ikea also uses a ‘complex offshore network’ to cut its tax bill, the Sunday Times report said. A ‘legal accounting trick’ involved a 3% franchise fee being paid to a company in Holland. A spokesman for Ikea was quoted as saying: ‘There is a 3% franchise fee on Ikea sales worldwide. Tax authorities in the Netherlands have consistently confirmed that Inter Ikea Systems BV is the beneficial owner of the Ikea retail system and the franchise fee income.’