03/06/21

UK: Digital giants avoided £1.5 billion in tax in 2019.

As published on itv.com, Wednesday 2 June, 2021.

Google, Apple, Facebook, Amazon, Microsoft, eBay, Adobe and Cisco collectively avoided paying an estimated £1.5 billion in tax on their profits in the UK in 2019, according to analysis of their accounts by the think tank TaxWatch.

Multi-national businesses, like these eight US tech giants, have companies registered all over the world and they can legally move money between their operations in ways that minimise their tax bills.

There are significant savings to be had. While the UK taxes corporate profits at 19% (a rate that is set to rise to 25% in 2023), in Ireland Corporation Tax is paid at 12.5% while in Bermuda it’s zero.

The world has changed enormously in recent years and tax system has struggled to keep up.

Nowadays, Amazon routinely outsells both Morrisons and Marks and Spencer in the UK. Google and Facebook attract more advertising money than ITV. But despite their vast sales, their UK profits and therefore their UK corporation tax bills are very small.

TaxWatch looked at global profit margins of each of the eight US multi-nationals, applied it to the UK sales they declare and attempted to estimate the amount of revenue the UK government lost out on.

“It’s outrageous that large multinational giants are moving billions of pounds out of our country and into tax havens or low tax jurisdictions,” said George Turner, the Executive Director of TaxWatch.

“It costs the tax payer and the Treasury a huge amount of money. For the eight companies we looked at, it costs £1.5 billion pounds a year. According to the Institute for Fiscal Studies, that’s enough to fund 40,000 full time nurses for the NHS.”

Google, Apple, Facebook, Amazon, Microsoft, eBay, Adobe and Cisco all say they pay the correct amount of tax in the countries in which they do business. They point out, entirely fairly, that they play by the rules and don’t make them.

Only Amazon challenged TaxWatch’s analysis, which it called “wildly inaccurate”.

Corporate tax avoidance is not just an issue in Britain. Many other countries want to change the tax rules but for years they’ve struggled to agree on the details.

On Friday, when the G7 finance ministers meet in London, there may be a breakthrough. The chancellor, Rishi Sunak, is hosting the meeting at Lancaster House.

On the table is a proposal by the Biden administration for a global minimum rate of corporation tax of 15%.

This would work as follows: if the overall rate of tax that a multinational pays in a low tax jurisdiction is below the required minimum (in this case of 15%) then the country where its head office is located can then charge a top-up tax to make up the difference.

In theory, this removes any incentive for multi-nationals to shift their profits abroad to save tax.

The problem is that the benefit goes entirely to the country where the head office is located, which in the case of most of the largest multi-nationals and almost all of the tech giants is the United States. You can perhaps see why the Biden administration is so keen.

Tax campaigners argue that it would be fairer to split the top-up tax between countries on the basis of where a company’s customers or its sales are.

Tax campaigner Richard Murphy said: “The G7 has always said it would help developing countries collect the tax that they are owed. This move does not look like that.”

Rishi Sunak is proceeding cautiously. He’s holding out because he believes digital multi-national should be paying more tax in UK and the Biden proposal is unlikely to deliver that.

On Wednesday night, a Treasury spokesperson said : “We support an agreement on a global minimum tax to crack down on tax avoidance, but for businesses to pay their fair share it needs to be part of a package which reforms rules on where tax is paid too.

“A minimum tax which results in more tax being paid abroad will not help provide public services here in the UK – so any agreement must ensure digital businesses pay more tax in the UK to reflect their economic activities.”

This is about securing the tax revenues that governments need but it’s also about protecting smaller businesses who can’t use the tax system in the way that multinationals can.

Waterstones is in direct competition with Amazon, Waterstones’ CEO, says the tax system is skewed against him.

“When you are competing with a multi-national they can use significant opportunities to minimise the tax burden upon them which gives them higher profits, which gives them more money to invest, which makes them frankly a formidable competitor,” Chief Executive James Daunt said. “But one that is playing with all the odds tilted in their favour.”

This weekend the G7 governments will attempt to agree on how and where the biggest companies should pay tax.

The aim is to make the rules fairer but, as often happens, different countries have different ideas of what “fair” means.

There’s a lot riding on this. The authorities in Bermuda will be looking on nervously. They’re in the firing line.