Multinationals' Scanty Tax Pay Angers UK - Wall Street Journal

By CHARLES FORELLE and CASSELL BRYAN-LOW LONDON—The storm brewing over Apple Inc.'s tax practices in the U.S. has already rained down hard in the U.K., where multinationals including Starbucks Corp., Amazon.com Inc. and Google Inc. have drawn public scorn for the paucity of taxes they pay here. But while the opprobrium has dented the companies' reputations, and the U.K. government has pledged to take up tax avoidance with international bodies such as the Group of Eight leading nations, little has yet been done to change the rules. That makes plain the hurdles to tackling global tax. Doing so requires corralling recalcitrant offshore jurisdictions, or broadly reshaping national tax codes. The European Union is mounting a crackdown on tax evasion and aggressive tax avoidance, but it is hampered by rules that require unanimous agreement among the 27 member states on much tax legislation. And low-tax countries, such as Ireland, aren't eager to lose the business their rates attract. Indeed, the U.K.'s Conservative government is proudly lowering corporate tax rates. Still, much of Europe is in a frenzy of budget austerity brought on by its debt crisis. That has meant cuts in public services and hikes in taxes paid by individuals. And that has sharpened the focus on corporate taxes. "For the public this is a crisis quite literally of the state, because if the state can't charge taxes on these companies it has lost its power," said Richard Murphy, a tax expert who advises unions and aid groups. Speaking to a parliamentary committee on Tuesday, Mr. Murphy said that he believed the problem lies with the global taxation system, which he described as "not working." Some of the same tactics cited by the U.S. Senate Permanent Subcommittee on Investigations' examination of Apple—such as the use of Irish entities to accumulate profit from a whole region—are in wide employ by global companies in Europe. The Senate report, citing an interview with Apple's chief tax official, said Apple negotiated a "special" tax deal with Ireland that resulted in a rate near 2%. Tuesday, Ireland's prime minister, Enda Kenny, told lawmakers there was no such special treatment. "Ireland doesn't do, let me repeat, doesn't do special tax [reliefs] for companies," he said. The U.K. parliament's public-accounts committee has held closely followed hearings on whether large—and apparently successful—companies are paying enough tax. According to testimony of corporate officials and written statements they supplied, the numbers are small. Starbucks has paid £8.6 million ($13.1 million) in U.K. corporation tax since 1998. Amazon paid £1.8 million in corporation tax in 2011; that year, it had £3.35 billion in U.K. sales. Google had more than $12 billion in U.K. revenue between 2010 and 2012; in November it said it paid £10 million ($15 million) in corporation tax in the past three years. . Google has faced particular scrutiny. During a tense two-hour appearance before parliament's Public Accounts Committee last week, politicians grilled Matt Brittin, a top executive for Google in Europe. Mr. Brittin testified that U.K. sales are actually completed in Ireland, where the company has its European headquarters and where the tax rate is 12.5%, rather than the 23% in the U.K. Margaret Hodge, a lawmaker in the opposition Labour Party, said people she described as whistleblowers had provided information that appeared to show that "the entire trading process and sales process took place in the U.K." Said Ms. Hodge to Mr. Brittin: "You're a company that says it does no evil and I think you do do evil." Mr. Brittin defended Google's practices. "Tax isn't a matter of choice, it's a matter of following the laws that are there internationally," Mr. Brittin said. "I think it's important to note that we comply with relatively complicated international tax laws that are set by politicians." The dance between politicians and executives can be awkward. Google's executive chairman, Eric Schmidt, wrote in a column in the U.K.'s Observer newspaper over the weekend that the company tried to "do the right thing" on taxes and supported "meaningful tax reform." Mr. Schmidt is a member of British Prime Minister David Cameron's business-advisory group, which met Monday. Mr. Cameron talked about taxes but didn't discuss Google's case or ask Mr. Schmidt about the issue, a spokeswoman for the prime minister said. Anti-tax-avoidance protesters have also latched on to Starbucks and demonstrated outside its stores. In December 2012, the company said it would take the highly unusual step of volunteering to pay around £10 million in extra tax in 2013 and in 2014. The British government says it believes this tax area is an issue for international, rather than domestic, law and has been pushing to make it part of the international agenda. "The Government is committed to creating the most competitive corporate tax system in the G-20; but this commitment goes hand in hand with our call for strong international standards to make sure that global companies, like anyone else, pay the taxes they owe," a spokeswoman for the U.K. Treasury said. Apple's U.K. tax practices have been comparatively low-profile. But it, too, takes advantage of Ireland. Apple's retail stores in the U.K. are operated by Apple Retail U.K. Ltd., based in London. According to the Senate report, Apple's European retail subsidiaries—such as Apple Retail U.K.—buy Apple products from an Irish entity at a "substantial markup," then sell them to consumers. The result: In the U.K., according to Apple Retail U.K.'s corporate filings, Apple Retail U.K. had sales of £860 million in the year ended Sept. 24, 2011, but recorded the cost of what it sold as £675 million. Operating expenses, chiefly pay and benefits for staff, reduced its taxable income to £31 million, on which it recorded £8.6 million in tax. Another Apple entity in the U.K., Apple (U.K.) Ltd., recorded £5 million in tax that year, and a third, Apple Europe Ltd., booked a tax credit of £2.1 million. An Apple spokesman, Josh Rosenstock, declined to discuss any aspect of Apple's U.K. operations. —Ainsley Thomson and Eamon Quinn also contributed to this article. via Technology - Google News http://news.google.com/news/url?sa=t&fd=R&usg=AFQjCNGQhxbnOnjmdG__JaX6vCwxg1J5YA&url=http://online.wsj.com/article/SB10001424127887324787004578497322412520166.html

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