The Government is powerless to stop large multi-national companies like Starbucks and Google from paying almost no tax on their profits in this country, Britain’s most senior tax official admitted today.
Lin Homer, Permanent Secretary of Her Majesty’s Revenue and Customs, told MPs the Government was currently unable to prevent big international corporations from declaring their profits in foreign countries with tiny tax rates - even if they made those profits in this country.
But within minutes of making the admission the Chancellor George Osborne announced that he was working with Germany in a concerted international attempt to address multinational tax evasion.
He said both counties would raise the issue at the G20 meeting in Mexico this weekend with the aim of introducing new OECD rules to outlaw the practice.
Next week senior executives from the coffee chain Starbucks are due to face MPs on the Public Administration Committee to explain why they have only paid £8.5 million in Corporation Tax despite in the last decade despite racking up £3bn in sales in the UK.
Officials from Apple and Google may also be called to give evidence to the Committee. Last year Google paid £6m in tax on a turnover of £395m while Apple is thought to be paying £14.4 million in tax on more than £1 billion of sales. It has been claimed that a more realistic tax bill would be closer to £570m.
The companies avoid the tax by setting up there international corporate headquarters in havens which attract next to no corporation tax. They have also been accused of adding artificially high costs – such as royalty payments – to the countries where they do business to cut down of their tax liabilities.
Giving evidence to the PAC Ms Homer said such practices were outside the scope of the HMRC’s powers and would require a coordinated international effort to tackle.
“All HMRC can do is to apply the laws and what I am acknowledging is that in an international setting multinational businesses can choose to some extent where some parts of their business are based and they can choose where some of their profits are based,” she said.
“I think that is very hard for individuals to understand and it is one of the reasons the Chancellor does want to make sure that the OECD stays ahead and does not allow an inappropriate amount of activity that would undermine tax systems.
“Many people, including quite a lot of finance ministers, would think that a situation where some countries offer a very, very low tax base is a challenge to all of us. That is different from saying that I have reservations about our expertise in enforcing the rules as they currently are.”
But Richard Bacon, deputy chair of the PAC, said most people would be outraged that a company with such a large presence in the UK as Starbucks could legally avoid paying the same rate of Corporation Tax as a smaller company that could not move its tax offshore.
“It smells and it doesn’t smell of coffee,” he said. “It smells bad.”
The Labour MP Austin Mitchell claimed it was part of a deliberate strategy to concentrate HMRC’s tax raising efforts on smaller companies and individuals who were less able to stand up to them
“You go easy on the big boys and go harder on the companies that can’t leave and have to pay their tax here,” he alleged.
“You are handling the big corps more gently, more kindly and generously than you are small and medium size British enterprises that can’t move their affair to a tax havens.”
Ms Homer denied this.
Announcing the move to try and get international Governments to work together to tackle tax avoidance Mr Osborne said he wanted Britain to have a competitive tax rates – but that those taxes needed to be paid
“We want competitive taxes that say Britain is open for business and that attract global companies to invest in and bring jobs to our country, but we also want global companies to pay those taxes,” he said.
“The best way to achieve that is through international action that ensures strong standards, without pricing ourselves out of the global market.“