UK urged to reform tax rules over profit moving by global firms

The UK government is coming under mounting pressure to stop dragging its feet on reforming international tax rules in the wake of revelations that Starbucks and other large companies are shifting profits around the world and paying small tax bills.

The calls come after a string of controversies over the low levels of tax paid by US companies operating in Britain, while analysis by the Guardian shows that four of America’s best known businesses – Amazon, Facebook, Google UK and Starbucks – have paid just £30m in tax over the past four years despite generating more than £3.1bn in sales.

As well as shifting profits outside the UK, campaigners also argue that the current system leaves a higher burden falling on British companies.

Richard Murphy, of Tax Research UK, said: “The [UK] government says that it has created a competitive tax system. The problem is that UK companies are paying the tax and the result is that it is an uneven playing field. UK businesses are disadvantaged against foreign businesses in the same market place. They are letting foreign companies do business here and not pay any tax.”

Murphy’s criticisms of the current system were echoed by David Spencer, a US attorney and adviser to campaign group Tax Justice Network, who said: “There is more and more evidence of the fact that multinationals are shifting substantial income from high tax to low tax jurisdictions. This is because the OECD’s [rules] are very complex and very difficult to enforce.” So abused have tax rules become, he added, that even the best resourced tax authorities – in OECD countries themselves, including the US – were straining to police the corporate world.

The calls for a revamp come after it emerged on Monday that the US coffee shop chain Starbucks had paid £8.6m in UK taxes on £3bn of sales since 1998, while last week Facebook UK – which paid its average employee more than it did the exchequer last year – was accused of depressing UK sales figures. Neither the Treasury or HM Revenue & Customs would comment on specific cases. A spokeswoman for the Treasury said: “The government is committed to ensuring that the right amount of tax is paid on all profits made in the UK.

“Companies which are resident in or have a permanent establishment in the UK are subject to corporation tax on the profits from their UK trading activities, including e-commerce. Cross-border trading is taxed in line with OECD guidelines and the UK’s wide network of tax treaties. These ensure that businesses are not taxed twice on the same profits and that British companies can compete effectively globally.”

A Revenue and Customs briefing paper earlier this month said: “Recent reforms to the UK’s corporation tax system mean that the UK has an internationally-competitive corporate tax system, which is designed to attract and retain economic activity here.”

John Christensen, a director of TJN, also said pressure was mounting on Europe and US to overhaul what he said were increasingly abused and discredited rules governing how multinational companies can apportion profits around the world. Speaking outside the annual meeting of the UN committee of experts on international tax co-operation in Geneva, Christensen said current guidelines from the OECD were under attack from increasingly powerful countries, led by India, China and Brazil. “The emerging countries say they don’t want the OECD model any more. There is widespread recognition these rules are no longer fit for purpose. But until there is agreement abusing will continue – costs will be piled up artificially in some countries or profits are shipped out to low tax countries.”

Emerging economies want the rules to be overhauled so that multinational companies are required to apportion their taxable profits according to factors such as where in the world sales are made, where the workforce is located and where capital is invested. Such tight rules are already well-established within the US, but they do not affect how American groups behave internationally. Moves toward tighter apportionment rules are most fiercely resisted in Europe by countries with the most aggressively competitive corporate tax arrangements, among them Ireland, Britain and the Netherlands.

Before this week’s meeting of the UN tax committee, the body’s head of tax co-operation, Michael Lennard, received a lobbying letter from the US Council for International Business urging the UN to rethink or ditch elements of its campaign to reform tax rules for multinationals. Members of USCIB include Amazon, Apple, Google, Hewlett-Packard and Microsoft.

There is no suggestion that any of the companies that have been identified as paying low taxes in the UK have broken any laws, and all say they comply with local tax rules.

Google has said it makes “a big contribution to the UK economy by employing over a thousand people”, while Facebook, which last week was accused of transferring UK profits to Dublin, said it had selected the location as its international headquarters as it was “the best location to hire staff with the right skills to run a multilingual hi-tech operation serving the whole of Europe”.