The Public Accounts Committee has little faith in H M Revenue & Customs' willingness to collect corporation tax from multinational corporations, and I think rightly so.
In fairness, it has no more faith in the multinational corporations it interviewed. It stressed in its report that Google, Starbucks and Amazon were representative of multinational corporations, they were no being picked on, but they won't enjoy the coverage.
Of Starbucks they say:
Starbucks told us that it has made a loss for 14 of the 15 years it has been operating in the UK, but in 2006 it made a small profit. We found it difficult to believe that a commercial company with a 31% market share by turnover, with a responsibility to its shareholders and investors to make a decent return, was trading with apparent losses for nearly every year of its operation in the UK.
It's a good job they have parliamentary privilege. Of Starbucks various schemes, outlined originally in a story to which I contributed on Reuters they say:
We suspect that all these arrangements are devices to remove profits from the UK to these areas with lower tax.
They're not alone.
They're harsher on Amazon:
At the hearing we were frustrated with the representative from Amazon, who we found evasive and unprepared to answer legitimate questions on the company’s structure and the true location of its economic activity.
Google they did not believe:
Google accepted that profits should be taxed in the jurisdictions where the economic activity generating those profits occurred but it asserted that its underlying economic activity arose from the innovative software technology underlying its Google search engine generated by the US company.
Google also confirmed that it had an entity based in Bermuda to protect its intellectual property.
We consider that the company undermined its own argument since it 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.
In summary they said:
All three companies accepted that profits should be taxed in the countries where the economic activity, that drives those profits, takes place and that, alongside their duty to their shareholders, they had obligations to the society, from which they derive their profits, which included paying tax. However, we were not convinced that their actions, in using the letter of tax laws both nationally and internationally to immorally minimise their tax obligations, are defensible.
I think morality is now unambiguously a key part of the tax agenda. Companies hate that. The reality is that they have no choice but accept it. The letter of the law can produce an immoral outcome. Now it's time to accept that is the case and demand two things.
One is a change in the law.
The second is a change in corporate behaviour.
I'll turn to both in later blogs.