Public Accounts Committee lambasts Amazon and Google over the low tax they pay in the UK
Executives from Amazon and Google were lambasted by MPs on Monday for their “immoral” tax practices, as pressure grows for reforms to the way multinationals pay tax in the UK.
The Public Accounts Committee (PAC), which monitors the government’s financial affairs, grilled executives from Amazon, Google and Starbucks over whether they were paying their “fair share” of tax in Britain, following reports of large multinationals using loopholes to avoid UK taxes.
Amazon tax structure
Margaret Hodge MP, the committee’s chairman, repeatedly criticised Andrew Cecil, Brussels-based Director of Public Policy for Amazon’s European operations, for his failure to provide answers to several questions, including the proportion of Amazon’s overall EU sales that derive from the UK.
“You’re not serious, here. It’s outrageous,” Hodge told Cecil. “We will expect a serious person to appear to us.”
Cecil explained that Amazon operates as a pan-European company based in Luxembourg, and that Amazon UK is merely a “trade name” used by that company. Amazon’s UK employees, meanwhile, are for tax purposes considered a mere “service company” providing services to Luxembourg-based Amazon EU Sarl.
Cecil said the EU-wide company’s 2011 turnover was 9.1bn euros (£7.2bn), and that it paid taxes of 8m euros, with after-tax profits of 20m euros. He was unable to provide the value of Amazon EU Sarl’s pre-tax profits or to clarify the ownership structure of the Europe-wide company.
Disproportionately low tax
A report by the Guardian in April found that Amazon generated sales of more than £3.3bn in the UK last year but paid no corporation tax on the profits from that income. Amazon is the UK’s biggest online retailer, but ownership has been held by the Luxembourg company since 2006.
Amazon employs 500 people in Luxembourg, compared with 15,000 in the UK.
Remarking that Amazon employs 30 times as many employees in the UK as in Luxembourg, Hodge said: “We think you manipulate your profits.”
Amazon’s pan-EU structure has benefits for consumers through the selection and convenience it provides, according to Cecil. “The Internet retail industry is bringing huge benefits to consumers across Europe,” he said.
Cecil acknowledged that in September French tax authorities presented Amazon with a back-tax assessment of 200m euros, an assessment which Amazon is challenging.
Another Amazon executive is to appear before the committee in two weeks’ time.
Google’s technical advantage
Meanwhile, Google claimed that its situation sets it apart in that all the “economic value” of the company’s services derives from the work of Google’s 17,000 engineers in California.
“The services we provide to consumers are based on the computer science which drives search, and that’s all done in California,” said Matt Brittin, Google’s head of northern European operations. “All the technology which creates the economic value comes out of California.”
He admitted that Google chose Ireland as its European base in part because of its favourable tax rates for corporations.
Hodge said that British Google users also contribute to the search engine’s economic activity, and that this isn’t reflected in the tax Google pays.
She also noted that Google employs 700 “marketing consultants” in the UK, compared to only 200 in its Irish office who deal with UK advertising sales. Google employs about 3,000 staff overall in Ireland.
“We pay all the tax you require us to pay,” Brittin said, adding that the company’s tax arrangements are not a matter of “personal choice” but of a responsibility to shareholders to keep costs down.
Hodge replied, “We’re not accusing you of being illegal, we’re accusing you of being immoral.”
Google’s filings record £2.5bn of sales in the UK in 2011 and a group-wide profit margin of 33 percent, but the company’s main UK unit paid £3.4m in tax last year. Amazon, Google and Starbucks have all been asked to supply further information to the committee.
Do you know all about UK tech leader ARM Holdings? Take our quiz!