Politics: International clampdown on tax avoidance

Closing the loopholes that allow companies like Amazon and Starbucks to pay negligible UK tax by hiding billions of pounds from sales to British customers through foreign countries are finally earmarked for closure in a programme of reforms backed by the G20 nations.

British, French and German governments have been the driving force behind the international agreements which will see a once in a lifetime move to patch up holes in international tax rules.

Produced by the Organisation for Economic Co-operation and Development group of industrialised nations, the 15 point action plan is said to be a major breakthrough at the heart of the social contract.  France’s Pierre Moscovici said “It is clear multinational companies have developed an unprecedented know-how for minimising their worldwide tax pressure,”

Liberal Democrats have long said that every person and company must pay their fair share of tax and yet under rules agreed by the last Labour government, for example Amazon’s £4.2bn annual sales in the UK, which rely on a network of eight mega-warehouses across Britain, are routed through Luxembourg and HMRC has no taxing rights over any profits from those sales.

The proposals will lead to firm recommendations within 12 to 30 months and have the support of the increasingly influential economies of Brazil, China and India as well as the likes of Luxembourg, the Netherlands and Ireland (who have been accused of beggar-thy-neighbour tax policies) will ensure that multinationals with warehouses will be taxed in the country where the distribution centres are located.

The plans are not yet fully confirmed due to opposition from the USA, whose Treasury Secretary, Jack Lew was notably absent from the meeting.  It would appear that Washington is growing increasingly frustrated with sniping from European politicians targeted at some of the most successful US multinationals including Starbucks, Google and Amazon.

While the USA appears to accept the merit of updating OECD tax treaty rules, senior figures in Washington are rattled by the French tax authorities, who have aggressively challenged the tax claims of digital businesses such as Google, Microsoft and LinkedIn in recent years.  USA negotiators have already blocked more radical French ambitions for new tax rules targeted at digital multinationals.

The USA meanwhile is confused by what they claim are mixed messages from the UK’s approach to multinational tax.  At the same time as the prime minister has sought to make political capital attacking “companies [that] navigate their way around legitimate tax systems, and even low tax rates, with an army of clever accountants the coalition government has been aggressively courting foreign multinationals by slashing the rate of corporation tax from 24% to an eventual 20%.

Most recently, the introduction of a so-called “patent box” tax break for research and development companies choosing to base themselves in Britain has also caused friction at an international level. Such tax breaks are to come under scrutiny in the G20 reform programme.

The Italian lorry and tractor maker Fiat Industrial has recently announced plans to relocate to Britain, attracted by the favourable tax regime. Last year, the insurance group Aon, best known as shirt sponsors of Manchester United, moved its headquarters to London. Tax experts say there is now a queue of major multinationals exploring similar moves.

The UK chairman of Ernst & Young said in May “I know of more than 40 multinational companies that have been looking to undertake global and regional headquarter relocations into Britain”.

Among those hoping the programme is not derailed are non-international companies in the UK and elsewhere, which have become increasingly vocal in their attacks on the unfair tax advantages afforded to multinationals such as Amazon. Some of Britain’s largest high-street chains – including Sainsbury’s, John Lewis, Dixons and Mothercare – have all called for a crackdown on Amazon’s tax arrangements.

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