New laws and prosecutions could be necessary to force Amazon, Google and other multinationals pay a fairer amount of corporation tax in the UK, according to MPs.
The Public Accounts Select Committee today published its report after holding hearings with Amazon, Google and Starbucks on the tiny amount of tax they pay in Blighty, and with HMRC on how big firms are getting away with paying so little.
Margaret Hodge, Labour MP and head of the panel, said it was clear that the companies were using complex corporate structures and exploiting the current tax law setup to move their profits out of the country.
"The drive to make these companies live up to their obligations will have to be conducted on a number of fronts," she said. "These include possible legislative change within the UK and efforts to increase international cooperation.
"The multinationals should be required to report their tax practices transparently. Prosecutions should be mounted where necessary and offenders should be publicly named and shamed."
Hodge added that the committee wasn't happy with the "unconvincing" and "evasive" responses from the three firms it questioned and that the taxmen at HMRC also "lacked clarity".
“HMRC should be challenging this but its response so far to these big businesses and their aggressive tax planning has lacked determination and looks way too lenient. Policing the tax system must be at the heart of what HMRC does," she said.
“We consider that paying an appropriate amount of tax in the country in which profits are made is not only a matter of basic economics. It is also a matter of morality. The UK should be taking the lead in making this point.”
The committee's report rubbished the way profitable businesses Starbucks, Google and Amazon tried to explain away their paltry UK tax bills. The MPs uncovered a number of unusual practices within Starbucks, which may have been used to ensure the UK part of the company operates at a loss, thus lowering its tax bill. For example, the US wing of the global corp gave Starbucks UK a loan with a very high interest rate, and coffee bought by its Swiss arm was sold onto the UK business with a 20 per cent mark up.
"We suspect that all these arrangements are devices to remove profits from the UK to these areas with lower tax," the report said.
In Amazon's case, the MPs said they had a tough time believing Amazon EU was the company that UK customers dealt with when order invoices came from the UK, inventory was held in the UK and the firm had more than 15,000 staff in the UK.
Google's UK and Ireland boss Matt Brittin told the MPs it wasn't fair on the search giant to tax its profits in Europe when all the software development and engineering work happens in the US. But his arguement rather fell apart when he subsequently admitted that European profits were heading off to Bermuda, not America. The committee said all that proved was that the company may be minimising tax in the US as well as Britain.
The MPs said HMRC needed a "change of mindset" on big multinationals and had to prosecute the ones that weren't paying the tax due in the UK.
"Effective change may require international cooperation to make sure that the UK is not isolated, but there is a moral case on top of the basic economic case that taxation of economic activity should transparently reflect where that activity occurs," the committee concluded.
"The UK should be in the lead in making and enforcing this case. There are also steps HMRC and the UK Government can take to improve the legitimate tax take from multinational corporations." ®