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News : UK Economy Last Updated: Nov 13, 2012 - 6:56 AM


UK MPs to question Google, Amazon and Starbucks on corporate tax strategies
By Michael Hennigan, Finfacts founder and editor
Nov 12, 2012 - 8:13 AM

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Dr Eric Schmidt, chairman of Google, meeting François Hollande, French president, at the Élysée Palace, Paris, Oct 29, 2012

Coinciding with the appearance of executives Google, Amazon and Starbucks at a House of Commons public accounts committee today to face questions from MPs on their corporate tax strategies, which enables them to pay very low or no taxes, UK Uncut, an activist group which targets tax avoidance, today announced a national day of action targeting Starbucks coffee stores in protest against the government's spending cuts that are hurting women.

The activists say that they have chosen to target Starbucks as a result of its tax avoidance; taxes they claim could fund public services currently being cut by the government. The action will see Starbucks stores transformed into refuges, crèches and homeless shelters to highlight the disproportionate impact of the government's spending cuts on women. The action will take place on Saturday 8 December, three days after the chancellor's autumn statement when further spending cuts are expected to be announced.

Matt Brittin, CEO of Google UK, Andrew Cecil, Brussels-based director of public policy for Amazon and Starbucks CFO Troy Alstead will give evidence.

Margaret Hodge MP, who chairs the public accounts committee, told parliament last month that Apple, eBay, Facebook, Google and Starbucks had avoided nearly £900m of tax in a year. The prime minister, David Cameron said in the House of Commons: "I'm not happy with the current situation. I think [HMRC - - tax and customs] needs to look at it very carefully. We do need to make sure we are encouraging these businesses to invest in our country as they are but they should be paying fair taxes as well."

Howard Schultz, Starbucks chief who created the global coffee brand, said in October: "Regrettably, Starbucks has only recorded a profit for UK tax purposes three times in the past 14 years (2006-2008). We will continue to respectfully engage in any dialogue HMRC officials would like to have with us."

"Even if we excluded all intercompany license fees and interest payments, our UK margins in our most profitable year were in the mid-single digits, well below our targets and our most profitable markets. Our low profitability in the UK is completely unrelated to any kind of license fees or intercompany payments, it is unfortunately due to a number of historical operating and cost challenges, which we are working hard to change."

Finfacts, Oct 2012: Starbucks among US multinationals avoiding/ evading taxes in UK

The Guardian has reported that Amazon.co.uk, Britain's biggest online retailer, generated sales of more than £3.3bn in the country last year but paid no corporation tax on any of the profits from that income  --  and is under investigation by the UK tax authorities.

Regulatory filings by parent company Amazon.com with the US securities and exchange commission (SEC) show the tax inquiry into the UK operation, which sells nearly one in four books sold in Britain, focuses on a period when ownership of the British business was transferred to a Luxembourg company.

The SEC filings, highlighted by Bookseller magazine, show that in the past three years, Amazon has generated sales of more than £7.6bn in the UK without attracting any corporation tax on the profits from those sales.

The Guardian separately reported that Amazon is to be stripped of its huge tax advantage on the sales of electronic books after the European commission ordered Luxembourg to close a VAT loophole. Amazon is registered as a Luxembourg company and pays that country's VAT charge of 3% when it sells an ebook to a British reader, rather than the 20% it would have to charge if it were UK-based.

The Guardian revealed that Amazon is forcing British publishers to cover the cost of a 20% VAT charge on ebook sales even though the true VAT cost to the online retailer is a fraction of that.

The European commission gave Luxembourg 30 days to increase its VAT rate on digital services from 3% to 15%. This will close a tax loophole that has encouraged companies such as Amazon, Skype and Netflix to be based in Luxembourg to benefit from the 3% rate when selling throughout the EU. Luxembourg must agree to change its VAT rate before the end of November, or face being referred to the European court of justice and risk fines. France has also been issued with a similar warning over its 7% rate for digital services.

Google UK is responsible for 10% of Google Inc's revenues which amounted to $37.0bn in 2011 -- so Google UK should report sales revenues of about $4bn.

Google UK has a staff of 1,300.

Most of the revenues are booked in Ireland and the same applies with Google France.

It has been reported in France that its revenue agency has demanded €1bn in taxes from Google. It reported only €138m of revenue in France in 2011

  • Revenue in France in 2011: €138m
  • Revenue in UK: £395m; admin expenses of £416.8m
  • Revenue in Ireland in 2011: €12.4bn - - this is also treated in Ireland as Irish services exports
  • Gross profit in Ireland in 2011: €9bn
  • Net profit in Ireland after €9bn in 'administrative expenses' €24m; payroll costs for 1,900 people in Ireland: €218m
  • Tax in Ireland on trading activities €3m; total tax charged at €22.2m including foreign withholding tax
  • Tax in the UK in 2011: £6m mainly related to staff stock options 
  • Tax in France in 2011: €5.5m

More here from Finfacts on taxes, multinationals and Ireland's phantom services exports.

Check out our subscription service, Finfacts Premium , at a low annual charge of €25 - - if you are a regular user of Finfacts, 50 euro cent a week is hardly a huge ask to support the service.

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