Starbucks, Amazon and Google accused of being 'immoral'

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Amazon, Google (NasdaqGS: GOOG - news) and Starbucks (NasdaqGS: SBUX - news) were yesterday accused of being “immoral”, “manipulative” and of “practising tax avoidance on an industrial scale”.

The US companies were branded a disgrace by MPs (BSE: MPSLTD.BO - news) who uncovered information about Starbucks’ “sweetheart deal” with Dutch tax authorities and attacked Amazon in the face of revelations about a $252m (£142m) French tax probe.

The fiery exchange, led by Public Accounts Committee chairman Margaret Hodge, saw all three companies accused of siphoning profits away from Britain by using a complex web of accounting strategies that were cynical and “unjust”.

“We are not accusing you of being illegal,” said Mrs Hodge, “we are accusing you of being immoral.”

MPs also expressed shock at revelations that Starbucks had signed a secret deal in the Netherlands where it has its European headquaters to pay a discount rate of corporation tax. The PAC demanded Starbucks finance chief Troy Alstead substantiate claims that the terms of the agreement meant he was unable to detail the rate.

In the UK, Starbucks has paid £8.6m of tax in the last 14 years thanks to reporting losses on it audited accounts in all but one of those years. But Starbucks UK also pays a long list of fees for royalties, intellectual property rights and interest on loans to other Starbucks divisions in Amsterdam, Switzerland and to the parent company in the US.

In Amsterdam, Starbucks employs 220 people, compared with 6,500 in the UK, raising questions about where economic activity is concentrated.

In a further disclosure, it emerged that Starbucks’ Swiss business which trades coffee, pays 12pc corporation tax and employs just 40 people charges the UK arm a 20pc premium for the coffee it sells to it.

“Why can’t you pass on the benefits to the UK by not overcharging for coffee or billing inflated rates of interest?” said Mrs Hodge.

Mr Alstead said he felt “terrible” about the negative public perception and insisted the Seattle based company did everything it could to “behave ethically”. He claimed Starbucks had been a failure in the UK, pursuing an aggressive growth strategy that left the company saddled with a string of badly performing shops.

“This is the most competitive market in the world, “ said Mr Alstead, who pledged the company would pay more tax once it became more profitable.

Andrew Cecil, head of public policy at Amazon, was lambasted by Mrs Hodge for avoiding the Committee’s questions. She (SNP: ^SHEY - news) said she would “summon” Amazon’s most senior executives as a matter of priority to make up for Mr Cecil’s “unacceptable nonsence.”

Despite having its warehouses in the Uk and employing 15,000 people, Amazon drives all of its sales through Luxembourg.

“Your entire business is here but you pay no tax here and that really riles us,” said Mrs Hodge, who accused Mr Cecil of being clearly not “credible”.

Google, which admitted it used tax havens and chose jurisdictions where tax would be most “cost effective”, sells advertising space through its European headquarters in the Republic of Ireland (Xetra: A0Q8L3 - news) , where the rate of corporation tax is 12.5pc.

Conservative MP Charlie Elphicke, who has been leading the criticism of US companies avoiding tax, said: "Billions of tax revenues are being lost to the UK. It's clear from today that international tax avoidance is being conducted on an industrial scale.

"This is not just unfair on hard working honest UK taxpayers. It gives overseas companies an unfair competitive advantage over UK companies. That's bad for our economic growth

"The tax abuse can be stopped. We can tighten UK tax presence rules, we can stop the 'expenses' used to cut business tax bills in the UK and we should refuse Government contracts for companies that don't pay a fair share of tax in the UK. "

Mr Elphicke said Google’s tax charge for 2011 was $2.6bn globally, on income of $12.3bn. That says Mr Elphicke equates to 21pc tax rate. However, when you look at Google’s foreign income before tax of $7.6bn only $248m of tax was paid the equivalent of 3.25pc. And in the UK, although declared earnings were £2.5bn, the tax charge was only £3.4m, the equivalent of 0.4pc of tax. Mr Elphicke says that if you applied the global operating margin to Google’s UK earnings you would be left with a £836m pre-tax profit, rather than a loss.

However, Mike Warbuton, senior partner at Grant Thornton said current attitudes risked sending the wrong message.

"There is a balance to be struck on this issue. We all have to pay our taxes and it is important that they are applied on a fair basis. At the same time it is vital for the UK to demonstrate that we are open for business and welcome investment from overseas. Multinational companies do not have to come here and if we drive them away our economy will suffer and jobs will be lost. "