Multinational execs grilled by UK tax committee
Google, Amazon and Starbucks deny illegality but are accused of immorality
By Gaurav Sharma | CFO UK | Published 18:19, 12 November 12
Senior finance executives from some of the world’s leading multinational companies were grilled the UK Public Accounts Committee (PAC) over the issue of local tax avoidance measures.
The PAC chaired by MP Margaret Hodge grilled Matt Brittin, the chief executive of Google UK, Starbucks chief financial officer Troy Alstead and Amazon's director of public policy Andrew Cecil, on Monday.
In recent months all three companies have been accused of paying minimal or no tax on their British earnings. The recent inquiry was triggered by a Reuters’ investigation which revealed that Starbucks had reportedly paid a mere £8.6 million in corporation tax in the UK over a period of 14 years.
Subsequently, several news reports alleged that Google, Amazon, Facebook, Apple and eBay had all employed UK tax loopholes to mitigate domestic corporation tax levies.
Giving evidence to the PAC, Starbucks’ Alstead admitted that the Dutch government had granted it a "special tax deal" on its European headquarters, which in turn receives royalty payments from its UK business.
On having only once reported a taxable profit in its 15 years of operating in the UK, Alstead said, “We're not at all pleased about our financial performance here. The most competitive coffee and espresso market we face is here in the UK."
Starbucks' royalty rate used to be 6 percent of sales, but was recently reduced to 4.7 percent. Alstead said the 6 percent royalty rate was paid by its businesses in other countries, including by independent licensees in 20 countries.
However, when challenged by the committee, he admitted that there was no detailed analysis of costs behind the 6 percent figure. Alstead denied that the Netherlands had been chosen as the company's regional headquarters because of its favourable tax rate.
“It was because Starbucks had a major roasting plant located there,” he told the PAC. However, all of Starbucks' businesses worldwide, including in the UK, actually buy their coffee from its Switzerland office. He said the Swiss office paid a 12 percent tax rate on its profits.
When quizzed, Amazon's director of public policy, Andrew Cecil, repeatedly said he would have to come back at a “later date” with information requested by the committee including the value of Amazon's sales in the UK, pre-tax profits and ownership structure of the European company.
He said sales via the Amazon.co.uk website - and in all other European countries - were actually made by its Luxembourg-based business which employs 500 people. Amazon's UK business, which employs about 15,000 people to manage deliveries, warehousing and other aspects of the business in Europe, operates as a service provider to the European company.
As such, the profits on the mark-up on the sales price are booked by the Luxembourg company, Cecil explained. While he revealed that the Luxembourg business' turnover in 2011 was €9.1 billion with after-tax profits of €20 million, Cecil said that Amazon had never publicly issued a country-by-country breakdown of its European sales.
He confirmed that the company had received a €200 million payment demand from the French tax authorities, but refused to divulge if another country, including the UK, was investigating the company's tax dealings.
Google’s Brittin admitted that the choice of Ireland was due to its favourable 12.5 percent corporation tax rate. He also confirmed that the holding rights to the company's non-US intellectual property rights were owned in Bermuda, also because of the tax benefits.
Brittin accepted that until recently, the Irish subsidiary was paying a fee to a separate Dutch company within the Google umbrella, purely for the purpose of reducing its taxes. He added that Google had a duty to its shareholders to minimise its costs.
In wake of revelations, executives from all three companies stated that they had complied with existing UK laws and had met all their obligations on domestic taxation. However, PAC chair Hodge responded by saying, "We're not accusing you of being illegal, we're accusing you of being immoral."
Many multinationals are seen creating corporate entities in relatively low taxation jurisdictions and then selling products in the UK. These products itself may have been designed and manufactured in one or more markets, but the companies stand accused of paying minimal tax in the jurisdiction(s) in question and moving profits and proceeds to the overseas entity.
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