Recent revelations of the latest fiscal shell-game being played by major multinationals is causing excruciating embarrassment to HM Revenue because it appears they have been taken for a ride by not just one but a whole gamut of major American companies—especially those in the service and retail sectors, who have broken into the UK over the last few decades.
The Scots are being forever told how much easier and better the world is when we have the size, resources and capacity of the UK to help us. This seems like a good example of where that not only does not apply but seems to apply in reverse. A list of major US companies conducting significant business in the UK, their UK turnover and corporate tax paid is shown in the table below.
Action Aid, the development charity which campaigns for multinationals to pay fair taxes in the developing countries they operate in, said government action was key to stop companies “hiding” wealth by moving it to tax havens. Companies could voluntarily improve their practices, but to compel them, the rules need to change. Companies must publish a basic set of accounts for every country they operate in to make it easier for tax authorities to work out how much tax is owed. The UK government has the chance to take the lead in tackling tax dodging next year when it chairs the G8.
House of Commons Public Accounts Committee (PAC) has been investigating this, starting with Andrew Cecil, public policy director at Amazon. He was unable to explain the corporate structure of the internet shopping firm, saying he ‘did not know’ who owned the Luxembourg holding company that Amazon uses to reduce its UK tax rate.
Starbucks chief Troy Alstead appeared before a UK PAC on Monday and was accused of lying to shareholders after he told the committee that the coffee giant made a loss in its British business dealing. He was rightly pressured by Margaret Hodge MP: “You have run the business for 15 years and are losing money and you are carrying on investing here. It just doesn’t ring true!”
Matt Brittin, vice president of Google’s northern and central European Sales and Operations, got off slightly lighter at the hearing because he appeared to have the information at his fingertips. He defended Google’s decision to operate in Ireland—and therefore pay its taxes there—as it employs 3,000 in the country compared to 1,300 in Britain. ‘Like any company you play by the rules,’ he said.
‘Playing by the rules’ means the European laws that allow competition across the EU; you only have to comply with the tax laws in one country to do business in all 29. Given the relatively generous tax laws in places like Eire, that means a large number of multinational companies conduct their business from there and this whole argument from Better Together that bigger countries have an advantage holds no water.
If that were true, why would Apple—the world’s biggest computer company—conduct its EU production, shipping, repair and support from Eire; why would Google—whose ad revenue at £27bn recently exceeded ALL print media ad revenues—conduct its EU development, administration and support from Eire? All these major new business monoliths play the same game. It is not always Ireland that benefits. But what is certain is it’s NOT the UK, which is treated as a dumb cash cow as slick corporate tax creations shelter profits.
HMRC is not up to this: the number of serious tax evasion cases—with more than £50,000 of suspected tax evasion—has fallen by a quarter in the past year as the government prepares to hand HMRC a general anti-abuse rule from April 2013. In 2011-12 there were 3,346 suspected tax avoidance cases, down from the 4,506 in 2010-11, according to data compiled by a law firm.
HMRC now seems prepared to use its strongest anti-evasion measures in cases that would previously have been regarded as quite modest in size. But, the fall in the number of cases doesn’t really gel with the idea that there is a substantial and growing threat to public spending because of tax evasion. In other words, while they crack down on the individual shoveling dosh through the Caymans, big company legerdemain passes as legit and no-one at corporate level gets their collar felt if, as Matt Brevin says, you ‘play by the rules’.
And. lest you despair that such nasty tricks were dreamt up by feckless foreigners, who do you think led the companies to cook their books this way? The UK Tax Tigers of Canary Wharf and Caymans by way of Jersey and Isle of Man. All three Train Operating Companies used their considerable wiles to play this highly profitable game while syphoning £2bn in public money out of the public transport system, largely through increased fares.
But the most egregiously gallus of the lot has to be Starbucks, who have prompted a scathing Special Report from Reuters for the effortless way they have screwed HMRC—and by extension every taxpayer in the UK—out of every red cent. A precis does not do it justice but try to bear with us just for the fun of the ride.
Seattle-based Starbucks is a $40bn operation has operated in the UK in 1998 but, despite growing to 738 outlets, has yet to show a profit here. Yet in those 12 years, Starbucks officials regularly talked about their UK business as “profitable” and even cited it as an example to follow for operations back home in the United States, where, Starbucks paid an average tax rate of 13 percent on overseas income—one of the lowest in the consumer goods sector. Both HMRC and the U.S. Internal Revenue Service (IRS) say confidentiality rules prevent them from commenting.
Over the last four years, Starbucks UK made a loss of £26m, £52m, £34m and £33m respectively. No wonder they paid no tax, despite being liable to our standard 24% rate. But there are two very good reasons why the business is not the basket case it looks. Firstly, Starbucks (like other consumer goods businesses) has taken a leaf out of the book of tech companies such as Google and Microsoft by housing intellectual property units in tax havens, and then charging their subsidiaries fat royalties for using it.
By paying a 6% of revenues fee to Starbucks Coffee EMEA BV any tax to pay is sheltered there. That firm had revenues of 73 million euros in 2011 but declared a profit of only 507,000 euros. Secondly, there is a sweet deal where all coffee is supplied via a subsidiary. Starbucks buys coffee beans for the UK through a Lausanne, Switzerland-based firm, Starbucks Coffee Trading Co. This charges handsomely because profits tied to international trade in commodities like coffee are taxed at rates as low as 5 percent in Switzerland. Swiss companies do not publish their books.
A third wheeze is to fund all UK operations from the Starbucks group and charge them handsomely for the privilege. Whereas Macdonalds will operate in a similar manner, its double the number of branches cost less than £1m last year and paid Libor + 1. As a contrast, Starbucks charges its UK unit interest at Libor plus 4 percentage points, costing the UK operation well over £2m (that would otherwise have been profit).
But the bottom line is not that Starbucks—or any of the rest of ‘em—are so smart. It’s that the supposedly big and competent UK government, with its PC Plod taxmen are so sluggishly stupid—especially dealing with the boys in the bright-coloured braces. Scotland should consider Eire’s nimbler opportunism and a rationale that independence would make sense if just to capitalise on the billions being lost on this intra-EU shell game alone.