BY Andrew Brady Since the turn of the year there’s been a flurry of investigations and hearings by representative institutions across the Western world into the lengths that corporations go to in order to avoid paying taxes. Tax experts such as USi Adv …
BY Andrew Brady
Since the turn of the year there’s been a flurry of investigations and hearings by representative institutions across the Western world into the lengths that corporations go to in order to avoid paying taxes. Tax experts such as USi Advisory Board member Richard Murphy of the Tax Justice Network, and, Nick Shaxon author and blogger at ‘Treasure Islands‘ have campaigned and heightened the level of awareness of the issue of tax avoidance and evasion for years – but why now do politicians now seem interested in tackling this issue after decades of willful blindness?
The answer you may think partly lies in the folly of pursuing austerity as Governments have now squeezed working people and families as much as possible but still can’t plug the deficit that they are intent of minimising yet perversely like in the UK actually facilitating a rising national debt precisely because of pursuing the political strategy of austerity.
Corporations are rightly getting a hard time in the press such as Amazon, Starbucks, Google and Apple but surely the blame lies more with Governments who have turned their heads to the activities of corporations. Politicians are going through the motions of ‘corporate-bashing’ but they are simultaneously giving the same companies signals that things won’t be changed unless there is cross-border agreement and they won’t act unilaterally – David Cameron being the latest politician to suddenly be alarmed of billions of pounds/dollars/euros not being paid by corporations. I’m not telling anyone anything new here but it is curious why now – all of a sudden – politicians seem interested in addressing this issue.
When you scratch the surface there appears to be a coordinated Broadway show to manoeuvre companies into publicly ‘coming-clean’. Perhaps, we are being too machiavellian at USi but will the trade-off be Irish style corporation tax levels (12.5 per cent) in order to get that cross-country agreement – is that the quid pro quo? The UK headline level of corporation tax is set to fall from 24 to 21 per cent next year, before dropping to 20 per cent in 2015. Luxembourg has a corporation tax rate of 21 per cent rate, where the likes of Amazon and eBay base some of their operations, while Germany is at 29 per cent and France at 33 per cent. Of course, this doesn’t take into account numerous tax breaks across countries that reduce their overall tax liabilities.
Yet countries can act unilaterally as Singapore has done recently acting to tighten its tax evasion and avoidance laws by making it easier to share information with other countries on financial details of individuals and financial institutions. The new law will clamp down on illicit flows and money laundering as it attracts money from wealthy entrepreneurs in the fast-growing economies of southeast Asia. The Government will allow the Inland Revenue Authority of Singapore to obtain bank and trust information from financial institutions without having to seek a court order. So some progress can be made, however, I would add that this merely brings Singapore up to the already low standards of tax framework agreements so let’s not get too excited.
Amazon’s UK operation generated £4.2bn of sales in 2012 but used a subsidiary in Luxembourg to reduce its corporation tax liabilities to just £2.4m in 2012 while it received £2.5m in UK Government grants over the same period. Surely, Governments have got to stop in effect paying companies to be here through grants unless they comply with domestic tax laws – is this too much to ask? Amazon UK employed 4,191 people in 2012, and thousands more via agencies, but due to interesting technical machinations the company was registered as a service provider to its Amazon EU Sarl business based in Luxembourg in order to reduce its tax bill. Suppliers have also informed The Guardian of extensive negotiations with Amazon contributing to the perception that the company carries out trading activities in the UK hence liable for tax. A music publishing executive is quoted: “I did millions of pounds of sales to Amazon. All buying and marketing was negotiated and run through Slough. I never heard anything from Luxembourg.” A spokesman for the company said: “Amazon pays all applicable taxes in every jurisdiction that it operates within.“
At the UK’s Public Accounts Committee, its Chair Margaret Hodge, said whistleblowers had informed her that Google had sold advertising in the UK and invoiced customers in the UK. Google had previously informed the press and politicians that UK customers paid Google in Ireland. Even Ernst & Young, said that an Irish company also became liable for UK tax if agents on its behalf were in effect negotiating and closing a deal but of course wouldn’t comment on Google as the company was a client – you couldn’t make it up.
So, roll-on to the appearance of Apple CEO, Tim Cook, on Tuesday at the Senate Permanent Subcommittee on Investigations which found that Apple in 2012 alone avoided paying $9 billion in U.S. taxes using a strategy involving offshore units with no discernible tax residence. Senator Carl Levin, chairman of the subcommittee said Apple had sought “the Holy Grail of tax avoidance,” creating an Irish unit that paid no taxes to any national tax authority for the past five years. Senator Levin asserted that Apple had shell unit which didn’t appear to have any country of residence – Apple Operations International – which acted in effect as a “ghost company” as they have no residency and disappear into the ether.
The company didn’t have an office or any employees in Ireland and neither had it paid any tax there either. The minutes of the board meetings of AOI showed that the directors – two who are based in California and one Irish employee of Apple Distribution International an Irish company that AOI itself owns – over the last six years from May 2006 to the end of 2012 AOI held thirty-three board meetings with thirty-two taking place in California. AOI’s Irish resident director participated in just seven of those meetings, six by telephone – but none of the eighteen board meetings between 2006 and August 2012.
Senator Levin further stated that Apple is using Ireland as a focal point for offshoring and negotiated a deal with the Irish Government for a tax rate of less than 2 percent. So Taoiseach who is right – you or Senator Carl Levin? We would encourage everyone reading this article to retweet the below.
— Union Solidarity Int (@USILive) May 22, 2013
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