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UK lawmakers slam Starbucks, Amazon and Google on tax

14 November 2012

From Yahoo Finance:

UK lawmakers criticized executives of Starbucks, Google and Amazon on Monday for not paying more tax in Britain and Amazon said it had received a $252 million demand for back taxes from France.

Britain’s Public Accounts Committee (PAC), which is charged with monitoring government financial affairs, invited the companies to give evidence amid mounting public and political concern about tax avoidance by big international companies.

Britain and Germany last week announced plans to push the Group of 20 economic powers to make multinational companies pay their “fair share” of taxes following reports of large firms exploiting loopholes to avoid taxes.

. . . .

Members of Parliament (MPs) on the committee quizzed Starbucks Chief Financial Officer Troy Alstead about how the group’s UK unit managed to report 13 years of losses.

“You’re either running the business badly, or there’s some fiddle going on,” Austin Mitchell MP said.

A Reuters report last month showed that Starbucks had paid no corporation, or income, tax in the UK in the past three years and had paid only 8.6 million pounds since 1998.

. . . .

Members of the committee repeatedly criticized Andrew Cecil, Brussels-based Director of Public Policy for internet retailer Amazon, for failing to answer questions about the group’s operations.

Cecil declined several times to tell the committee the level of Amazon’s sales in the UK.

“We have not disclosed those figures ever publicly,” he said.

Link to the rest at Yahoo Finance

Amazon, Non-US

30 Comments to “UK lawmakers slam Starbucks, Amazon and Google on tax”

  1. IANAL, but somehow, I suspect that most of the folks complaining about perfectly legal (in the US, at least) tax avoidance would sing a different tune if they got better at tax avoidance, themselves.

    Now, tax evasion is another story.

    Sure, that report of Starbucks’ numbers sounds odd—assuming it’s accurate, which is another issue. It could be bad business practices, (legal) tax avoidance, or (illegal) tax evasion. Only that last option is illegal.

    That fit-pitching over legal tax avoidance doesn’t make me very comfortable about governments’ financial stability.

    • It’s possible that one of the reasons Starbucks has had no corporate profits is that the cost of paying numerous other taxes (VAT, employee taxes, etc.) was so high that it was making no profit.

      • Sorry for not being clear. I personally consider that situation a form of legal tax avoidance—at least, from the perspective of the taxes avoided. 🙂

      • The point of the inquiry is moral more than legal.

        I can’t find the UK article right now, but ‘other taxes’ in Starbucks’ case amounted to an added 15% cost.

        Meanwhile, Starbucks’ prices were already roughly 15% higher than other UK-based coffee vendors, who do pay their legally due taxes.

        The main reason for the inquiry is simply that most tax payers in Europe and their governments thinks that everyone, individual or corporation, should pay taxes where they do their business.

        Again, the point of the inquiry is more moral than legal: When Starbucks operations creates landfills full of paper cups in England, is it right that Starbucks be exempt from paying for the clean up indirectly through taxes and that this cost is instead levied upon British nationals? British government thinks not. Good on them.

        • If the British government thinks that, they should change the law. But they should also be aware that the extra taxes will result in either increased prices for the people buying that coffee, or reduced wages or higher productivity demands on those who are making the coffee.

          So they’ll be screwing the workers, not the corporations. Hardly seems ‘moral’ to me.

          • Starbucks already pays minimum wage, so let’s not try playing the moral high ground card on their behalf, please.

            We’re not talking about ‘extra’ taxes – we’re talking about fair taxes.

          • Both options you describe would be due to corporate acts to protect maximum profit. Corporations screw workers if and when they can get away with it. It’s the nature of the beast.

            As a beast it needs both carrot and whip.

            Corporations have had pretty much free reign in the US the last decade. Corporations still post ever greater profit. US as a nation however, is virtually bankrupt. To me it is immoral that corporations do not share more of their wealth (resulting in a smaller, but profit nevertheless) to benefit society as a whole.

            • Simply put, I demand corporate owners to be patriots first and business owners second, wherever they are doing business.

            • Personally, I would say that forcing corporations to share their wealth is more immoral.

            • Corporations have had pretty much free reign in the US the last decade.

              You will doubtless be surprised to learn that the U.S. has, in fact, one of the highest rates of corporate income tax in the world — 35 percent, not counting state taxes. Corporations are legally required to organize their affairs to pay the minimum legal amount of tax: they have a fiduciary duty to their shareholders, and if they voluntarily pay more tax than necessary, the shareholders can sue them.

              Non-profits and governmental bodies are also corporations; they are organized for different purposes and are not subject to the fiduciary duty of maximizing profit (since they are not supposed to make any). However, they are subject to other legal restrictions which make them inappropriate ways of organizing a business. It’s not ‘the nature of the beast’, it’s the nature of the laws which ‘the beast’ is required to obey.

      • VAT is neutral for companies and basically just paid by the end consumer.

        For example, Starbucks pays the applicable VAT rate when buying coffee beans, milk, sugar, cups, electricity and whatever else they need to keep a store running. Then they hand in the invoices or receipts to the respective tax authority and get the VAT they paid back on their tax return.

        Meanwhile, Starbucks charges its customers the applicable VAT on every coffee or muffin ordered. Starbucks then passes on the VAT to the respective tax authorities.

        VAT is neutral for Starbucks, because they get the VAT they paid back from the respective tax authorities. Meanwhile, a private customer who just wanted a cup of coffee can’t get the VAT returned, unless he was having a cup of coffee at Starbucks in the course of a business meeting.

        You can complain that corporate taxes are too high, but complaining about VAT is just stupid if you’re a corporation, because it’s a consumption tax. Businesses don’t pay VAT, they get it returned. It doesn’t matter whether you’re Starbucks or Amazon or a little freelancer like myself either. If it’s a business expense, I get the VAT back from the tax authorities.

        Really, I don’t know why Americans always complain about VAT. VAT is the same thing as sales tax and Americans have sales tax. Only that VAT makes a bit more sense, because it’s already calculated into the price that’s on the price tag, unlike the US where the price on the tag and the price you actually have to pay differ, because American shops can’t manage to include the sales tax in the price beforehand. Plus, VAT is at least consistent inside a single country, whereas in the US every state has a different sales tax. So really, VAT is nothing you don’t have in the US, it just has a different name.

        And is no such thing as an employee tax for businesses, though individual employees of course pay income tax. Business don’t have to pay taxes for employing people. However, they do have to pay a share of their employees’ health insurance, unemployment and social security premiums, which is not a tax, but something completely different.

  2. Politicians slam companies for obeying the law. If they don’t like it, maybe they should change the law rather than whine.

    Oh, except they won’t, because it’s EU law.

  3. If you leave loopholes, companies will exploit them. Having said that, if Amazon is free to hide their UK income from the UK government, we’re not talking loopholes, we’re talking about gross governmental incompetence. It cast’s the proceedings in a new light.

    Are the ministers covering their own failings with their petulant, cash wasting inquiries? I think, perhaps, that a simple conversation with staff lawyers will tell them they need to change the laws. For the cost of supporting a committee’s activities, they probably could have built a nice public pool.

    • And the loopholes are often included in tax laws to benefit friends and cronies of the lawmakers so who are they to complain when others besides the intended beneficiaries use those loopholes.

    • Amazon isn’t hiding its revenue figures from the UK government, it was refusing to answer questions in a select committee. I am sure the government has access to these figures.

      It’s important to note select committees are made up of backbenchers (members of parliament who are not ministers) who often have a very different political position to the government i.e. are often members of the losing party.

      This has much more to do with attacking government policy than real proposals.

      • “Britain and Germany last week announced plans to push the Group of 20 economic powers to make multinational companies pay their “fair share” of taxes following reports of large firms exploiting loopholes to avoid taxes.”

        This is not a backbench agenda. It’s a grassroots movement brewing all over Europe and the local governments are simply acting in accordance with voter’s wishes lest they will not be reelected.

        Ideologically, the quest is to pin corporations with ‘personhood’ in order to make multinational companies responsible for the local environmental and financial messes they now leave locals and local governments to fix.

        • Hi Tina, I tried to answer this a couple of times but I think it got eaten up by technology or PG’s spam filter.

          Short question: do you think a proposal to the G20 which they know America will reject is significant, or is it grandstanding.

          Second question, how many cases of tax evasion against multinational companies have the UK regulators prosecued.

  4. I appreciate Tina’s comments here, and echo her sentiment. Although I should add that I know little to nothing about tax law, and I don’t know what taxes these corporations are already paying.

    But I do think there is a moral issue, one of social responsiblity. Corporations have a duty to the communities in which they operate business and from which they take money.

    A Company should not bleed a Country of money. As companies become increasingly international, I think it is very important that companies not be allowed to come into a Country and take money out of it without giving back in the form of employment, supplier contracts, community relations and taxes.

    As for Starbucks losing money for 13 years? Give me a break. They would have closed shop after the first year. Why would a company operate at a loss for thirteen years? Makes no sense. Even if they are Starbucks.

    • Why would a company operate at a loss for thirteen years?

      Because it’s a tax write-off for their parent company. Happens all the time.

      Corporations have a duty to the communities in which they operate business and from which they take money.

      No, they don’t. They are under no legal obligation at all to provide jobs, and you see how useful the tax “obligations” are. We live in a free market society. Corporations are free to a.) pay people minimum wage, b.) charge whatever they want (usually what the market will bear, and with some exceptions), and c.) outsource the jobs to whereever is most cost-effective. Which generally is outside the US.

      If corporations are people, they are sociopaths. They have no empathy. Occasionally you will get the head of a company who decides to steer the company in a slightly more altruistic direction, but that is usually bad for the company’s bottom line.

      If you really want to see corporations acting “nicer” you need to make it worth the corporation’s while to do so, either through incentives (carrot) or penalites for not doing so (stick). Ideally, both. But they have to be the right carrots and sticks. And like everyone else in this country, they don’t really think about the past too much, and they don’t really plan things for the long-term. They want now profits.

      People need to remember that good deeds done for selfish reasons are still good deeds. Make the good deeds attractive enough to the corporations and you will start seeing progress.

      • Because it’s a tax write-off for their parent company. Happens all the time.

        In the first place, a loss in the U.K. is not deductible from taxes paid in the U.S. So your claim is factually false in this instance.

        In the second place, it is never good business practice to lose money simply for the sake of avoiding taxes. Even at the U.S. corporate tax rate of 35 percent, you lose a dollar to get back 35 cents — which still leaves you out of pocket for 65 percent of your losses. Only a chump would pay a dollar to buy a quarter and a dime.

      • Mercy,

        I think you are right that corporations act as sociopaths, and I think your carrot/stick argument was well said. But I am going to disagree because I don’t agree with that system.

        It may make sense in a business sense, but not in a moral sense.

        In a moral sense – I do not believe that Corporations should be allowed to be sociopaths. Sociopaths rape, pillage, steal and destroy without thought. This viewpoint takes rapacious greed and raises it to a moral absolute. As if it’s okay for people to be as greedy and destructive as they want, because it will somehow all get worked out in the marketplace.

        It does NOT get worked out in the market. In reality it has created a system where 1% of the population horde wealth and luxury, while I walk by people starving to death on the way to my job.

        So, I don’t defend or agree with this current system, it does not work well, it is not a moral system.

        I very much believe that Corporations should be regulated. I very much believe that a Corporation should not be allowed to pillage a Country’s economy out of greed. Being allowed into a community to sell items and make money is not an absolute. The community is allowing you to enter, and it is completely reasonable for the community to require you to give back to the community in exchange for making profit there.

        Corporations should give back to the community from which they take money, or they should not be allowed in that community. I don’t answer the door to sociopaths, and I don’t think Countries should either.

  5. When you run out of straw men to burn, you need to start painting faces on them.

    If they are fudging numbers of breaking the law, by all means go after them. If they are playing by the law, you are limited to changing the law to remove any loopholes.

    A self-pious mug of whine is a poor substitute for a proper cup of tea.

  6. For anyone unfamiliar with British politics, these “hearings” are pure political theater – with politicians mugging for the cameras and trotting out pre-written soundbites.

    The issue is a real one, despite that, but it’s hardly limited to the three companies named above. Most large corporations with an international presence use a variety of methods to limit their tax bills – usually through subsidiaries in Luxembourg, the Netherlands, and Ireland.

    It normally involves (in simple terms) a series of holding companies where the company on the ground in, say, the UK is designed to never make a profit as it is paying various licence fees and transaction fees to the other holding company in a different country with lower tax rates.

    There is a debate as to whether these set-ups are legal or not, but there is no doubt that if they aren’t breaking the letter of the law, they are certainly breaking the spirit.

    To me, there are a few issues here:

    1. If politicians are genuinely serious about getting large corporations to pay more tax, these hearings won’t be how or where the issue is decided. I’m skeptical that they are serious, however, and I’m sure it’s just political point scoring.

    2. Given that virtually every large multinational corporation is playing the same game, were these three chosen as they would be the most recognizable to Joe Public so politicians could score points in the press?

    3. There is a genuine debate to be had, but it’s not about Amazon unfairly squashing bookstores through tax avoidance (they would be doing that anyway, and if Amazon didn’t exist, the internet would be doing it anyway0), but about how the system in general is tilted against small business and in favor of big business. Small businesses generally can’t take advantage of these kinds of schemes, and are competing against larger ones who can.

    4. Another finalof this, which was also mentioned in the sales tax debate in the US: If Amazon is forced to pay more tax, that will act as a huge barrier-to-entry to the next generation of companies that will be required to disrupt Amazon’s business once they (inevitably) get flabby and inefficient. Instituting some kind of tax against internet companies will merely entrench the current batch, and act as a dampener on those companies innovating in general (to the consumer’s expense) because they won’t have to.

    • Kind of reminds me of the flap over Harlequin where they used a foreign subsidiary to shortchange authors on a breathtaking scale.

      Companies always look to the bottom line. Lawmakers always look to re-election.

      It’s up to the public to make it clear to lawmakers that they’ll be working at Starbucks if they leave the loopholes. Of course, it’s never that easy. Squeezing money out of a foreign company is a sticky business…

      If this comes down to action by the G20, we’re not going to see change any time soon.

  7. Amazon, Starbucks, Google, etc… are exploiting legal loopholes that are a result of the EU free trade zone. In fact, Ireland largely built its “Celtic tiger” boom in the 1990s on the fact that their corporate taxes are lower than elsewhere in the EU. And Luxembourg has built its in entire economy on low taxes – they used to be and still are to some degree a banking and tax haven. The morality of what those companies and others (Nokia got a lot of negative press out of a move like this some years ago) are doing may be questionable, but it’s perfectly legal.

    And while there may be no local alternatives to Google, British consumers have alternatives to Amazon (W.H. Smith and Waterstone’s both have brick and mortar stores and online stores) and Starbucks. Starbucks is one of the few companies I boycott, because I hate the fact how they barged in with their faux hipness and displaced established local cafés and tearooms that were usually much better. When I crave a coffee, I go to independent cafés or tearooms whenever possible and a local or European coffeeshop chain, when not. So if you’re British, why do you go to Starbucks rather than the local alternatives Costa Coffee or Cafe Nero, both of which are much better than Starbucks anyway?

    • Yes it is (by-and-large) legal and these companies are exploiting loopholes, but let me give you an example to show how both countries like Ireland and the companies involved are operating in a little bit of a gray area.

      As you correctly stated, Ireland’s late 90s boom was at least partly built on very low corporate tax rates. At 12.5%, I believe it’s the lowest, or one of the lowest, in the EU – and it led many companies to set up their European HQs in Dublin so they could funnel all their European income through Ireland.

      However, paying only 12.5% on their European profits was still too high for some companies. During the tech boom around the time of the first dotcom bubble, there was fierce competition among European countries to attract the business of the rapidly expanding tech companies. Ireland wanted to lower its corporate tax rate even further, but it wasn’t allowed to do so by the EU. So they found a back door.

      Ireland brought in a law which gave an exemption to paying corporate tax on royalties earned from licensing software. That sounds like a small enough deal, but it was a special piece of legislation designed to serve the kind of corporate structures I outlined above. In a very short space of time, Ireland became a tech hub, with IBM, Microsoft, Amazon, Google, Yahoo, Facebook, LinkedIn, Twitter, Ebay etc. all setting up in the country.

      And none of them have to pay any tax.

      So, yes, what these companies are doing is legally exploiting a loophole – and, indeed, one specifically designed for them by the Irish government. But the loophole was created to circumvent European rules, which is why it’s not quite as black-and-white as saying “it’s perfectly legal.” That may well be debated in a European court one day.

  8. That ain’t chump change. The trbuloe is that compared with what they make from these loopholes, the amounts they give to politicians are chump change. Which means that we have to ask Who are the chumps?

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