Multinational companies like Starbucks, Google and Amazon have come under fire recently for paying very little or no corporation tax at all despite the fact that they generate millions of pounds in UK sales.
It is unfair to ordinary people and small businesses who face rigorous action and are placed under tight scrutiny by authorities to ensure every single penny of their revenue is taxed.
Big corporations manage to avoid millions in taxes by exploiting the loopholes in tax laws.
Global companies use aggressive tax-avoidance strategies which involve transferring of profits and income into low-tax countries by a variety of techniques. A common way is by transfering profits offshore to other countries is through transfer pricing, payment of royalties for intellectual property or franchise payments to other group companies to artificially reduce their profits.
Starbucks for example claimed that it made a loss for 14 of the 15 years it has been operating in the UK, and the company has paid no tax in Britain for three years. It is unlikely for someone to believe that a company with a 31% market share by turnover was trading with apparent losses for nearly every year of its operation in the UK. What Starbucks says is inconsistent with what is has been telling its shareholders (that their business in UK is profitable).
UK Prime Minister David Cameron warned tax-avoiding firms to “wake up and smell the coffee” in his speech at the World Economic Forum in Davos. Starbucks was quick to pick that and threatened to suspend investment in UK in protest over perceived government criticm of its tax affairs.
What surprises me is that Starbucks said they do not make any profit from its UK outlets, yet they have plans to invest 100 million pounds ($158.06 million) and open 300 more outlets in the UK, by 2016.
Amazon, Britain’s biggest online retailer generated sales of more than £7.6bn in the past three years but paid no corporation tax on any of the profits. Amazon’s business in UK avoids tax as the ownership of the main Amazon.co.uk business was transferred to a Luxembourg company Amazon EU Sarl in 2006.
Amazon’s business in the UK is classed only as an “order fulfilment” business so it is simply a delivery organisation in the UK. All payments for goods from the UK go direclty to Luxembourg. Yet Amazon has over 15,000 staff in the UK and its customers are invoiced from the UK. It has inventory physically in the UK for UK customers and to all intents and purposes has the majority of its economic activity in the UK, rather than in Luxembourg, but pays virtually no corporation tax in the UK.
Similarly, Google reported a revenue of £396 million in the UK, in 2011, from Google Ireland, but paid corporation tax of only £6 million. Google remits its non-USA profits (including from the UK) not to the USA but to Bermuda and therefore may be depriving the USA of legitimate tax revenue as well as the UK.
One of the major problem is that international laws for companies have not changed much in decades, even though the international economy has changed a lot. To close the loopholes, the countries around the globe will need to work together and amend the international tax laws. This tax problem is highly important because otherwise small businesses are hindered by taxes and killed off in the competition in the market while multi-national companies enjoy evading taxes.
- Wake up and smell coffee – Cameron
About Bilal Khan
I am a Business Management and Marketing student at Nottingham Trent University, currently on an Industrial Placement in a UK company. My passion and interest in Marketing has led me to start my own Marketing blog MarketingVolume.com (currently offline). I enjoy writing on various Marketing topics and I am a student member of the Institute of Directors (IOD).