Less is more as corporates' tax responses vex MPs

by Calum Fuller

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13 Nov 2012

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Margaret Hodge

ANOTHER Public Accounts Committee hearing, more withering questions from MPs, and despite all its barking (no pun intended), it ultimately failed to glean the answers it needed.

The committee convened to investigate how multinationals have managed to pay so little corporate tax in the UK – targeting three of the most prominent businesses accused of avoiding tax.

There were, in all fairness, no real winners from yesterday's exchanges. The committee did a fine job of humiliating Amazon's public policy director Andrew Cecil and, to a lesser extent, reproaching Starbucks CFO Troy Alstead and Google vice-president for northern Europe Matt Brittin – both of whom fared somewhat better than their counterpart by virtue of having done their homework.

Indeed, as with so many committee meetings of this nature, there was an air of after-school detention to the affair; the assembled committee furious teachers to the executives' poorly behaved schoolboys struggling to justify their actions.

Alstead tried the apologetic approach, and pleaded poverty. He feels "terrible" the UK taxpayer is missing out as a result of poor performance, he said.

Starbucks, according to Alstead, has only turned a profit once in the 15 years it has operated in the UK, to which the committee asked why it persists in staying on these shores.

His only answer was the UK's pivotal importance as a market. The committee was not convinced "any corporate entity would sustain losses for 15 years", however.

The coffee house roasts its coffee in its European headquarters in the Netherlands, where it employs some 250 staff and pays a discounted corporate tax rate, which Alstead said he could not discuss further due to the terms of the deal with the Dutch revenue – much to the ire of committee chair Margaret Hodge.

Alstead then revealed Starbucks UK pays fees for royalties – initially set at 6%, now down to 4.7% – intellectual property rights and interest on loans – set at 4.9% – to other Starbucks divisions in Amsterdam, Switzerland and to the parent company in the US.

But he could not justify the size of those rates, nor could he or the committee establish on what part of the coffee-making process Starbucks is entitled to charge for intellectual property.

Amazon's Andrew Cecil played the part of the boy who had forgotten to revise. He obfuscated regularly, particularly on breakdown of profits on site-by-site and jurisdiction-by-jurisdiction bases.

His inability to provide detail on the corporate structure of Amazon beyond its "pan-European" operation, based in Luxembourg, appeared to be the most frustrating element of the session, drawing the scorn of the committee, which branded his submissions "not serious".

The most fruitful of the three submissions arguably came from Google's Matt Brittin, who was comparatively open in his submissions, and, more often than not, directly answered the committee's questions.

Indeed, like Alstead, he drew the committee's attention to a tax scheme Google had used in the Netherlands, although he hastened to add it was no longer in use.

He also admitted that the favourable tax conditions were among the reasons the search engine had chosen to make Ireland its European hub, but crucially he could not explain to the MPs precisely how administering the Irish operation from Bermuda benefits the company's shareholders.

For all the bluster from Hodge and her colleagues, several key points remain unanswered. Instead, all three parties were sent away with extra work to do, and in the case of Cecil, a 'see me' note.

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