Britain to target multinationals evading tax

Profitable Starbucks in cross hairs for avoidance of corporate levies


British finance chief George Osborne on Monday was expected to announce a £154 million crackdown on tax avoidance and evasion as public anger rises over the tax arrangements of big-name multinational firms.

The money, equivalent to $246.5 million, will be used to establish a team of investigators to target high-earning individuals and companies who aggressively shield their earnings from the British government.

The announcement will come a day after global coffee giant Starbucks said it was reviewing its tax affairs in Britain after it took a roasting from lawmakers and campaigners who accuse the chain of paying too little.

The Seattle-based firm admitted that “we need to do more,” although it would not confirm a report in Britain’s Sunday Times newspaper that it will promise this week to increase the amount of corporate tax it pays.

Under Osborne’s plans, extra staffers will enable authorities to expedite challenges against multinationals’ transfer-pricing arrangements to stop them from shifting profits out of Britain.

A new HM Revenue and Customs “center of excellence” will be also be created to train staff members on tackling offshore evasion and avoidance.

It is hoped that the funding, which will be spread over two years, will result in a £2 billion ($3.2 billion) boost to tax coffers.

“The government is clear that while most taxpayers are doing their bit to help us balance the books, it is unacceptable for a minority to avoid paying their fair share, sometimes by breaking the law,” Osborne said. “We are determined to tackle this problem and HMRC are making good progress, but we are giving them additional tools to bring in more.”

The minister is due to reveal further measures in Wednesday’s “Autumn Statement,” which is also expected to include details of a general antiabuse rule to be introduced next year.

Starbucks had previously confirmed that it did not pay any corporate taxes in Britain for the past three years on sales worth £400 million ($640 million).

It was able to do so by paying fees to other areas of its business — such as “royalty payments” for the use of the brand — which resulted in the company posting a series of losses and not having to pay any corporate tax.

The Sunday Times said that since coming to Britain in 1998, the chain has paid just £8.6 million ($13.8 million) in corporation tax despite generating £3 billion ($4.8 billion) in revenue.

The Public Accounts Committee — a panel of British lawmakers — is due to release a report this week that is expected to criticize the measures used by corporations to avoid paying tax as the rest of the country grapples with tough austerity measures.

The committee quizzed senior figures from Starbucks, U.S. online retailer Amazon and Internet search giant Google.

During the hearing, Margaret Hodge, a Labour Party lawmaker who chairs the committee, said Starbucks’ claim that its British division was unprofitable “just doesn’t ring true.”

Starbucks has faced calls by activist groups for a consumer boycott in recent weeks.

Companies operating in Europe can base themselves in any of the 27 European Union nations, allowing them to take advantage of a particular country’s low tax rates.

Google has picked Ireland and Bermuda as its main bases, while Starbucks has its European base in the Netherlands and pays British tax only after transferring large sums in royalties to its Dutch headquarters.

Hodge said executives from the three companies had been “unconvincing and, in some cases, evasive,” and she accused Britain’s tax agency of being “way too lenient” in dealing with multinationals.

The committee said Amazon paid £1.8 million ($2.9 million) in British tax in 2011 on turnover of £207 million.

“All three companies accepted that profits should be taxed in the countries where the economic activity that drives those profits takes place,” the lawmakers’ report said. “However, we were not convinced that their actions, in using the letter of tax laws both nationally and internationally to immorally minimize their tax obligations, are defensible.”