Rage in the House of Commons – tax ethics of internet and lifestyle companies in the dock
By Dr. Jürgen Wiemann, German Development Institute /
Deutsches Institut für Entwicklungspolitik (DIE), EADI Vice President
of 17 December 2012
Rage in the House of Commons – tax ethics of internet and lifestyle companies in the dock
Bonn, 17 December 2012. No one visiting London for the first time should miss the opportunity of taking a look at “the mother of parliaments“. You will be lucky, however, to witness an exciting de- bate. But in the age of the internet you can always catch up on that later. You do not even need to travel to London to experience the strangely vi- brant debates in the House of Commons. A few months ago, for instance, it was possible to follow the embarrassing cross-examination of the fa- mous, or infamous, newspaper publisher Rupert Murdoch and his entourage about the unsavoury phone-hacking undertaken by the tabloid news- papers he controls, and on 12 November 2012 a hearing held by the Commons Public Accounts Committee turned into a revealing lesson on the shady fiscal side of globalisation.
For two hours representatives of Starbucks, Ama- zon and Google were grilled on the strategies and tricks their companies successfully employ to re- duce their tax bills to next to nothing, despite their extensive and steadily growing activities in the United Kingdom. The German media, too, reported that it just had to be companies who number us all among their customers that pay so little tax. At a time of global financial crisis and ever tighter budgets, it is something to which those involved in setting the country’s budget must draw attention. When such high-turnover companies as Amazon and Starbucks not only pay comparatively little tax, but also shrink the tax base by ousting resident competitors – bookshops and cafés – who cannot avoid normal taxation, everyone should take heed and examine their shopping habits.
Nonetheless, the hearing did not result in an un- ambiguous condemnation of the companies questioned. Through their spokesmen they pro- tested that they were doing nothing wrong if, by
strategically locating their registered offices, they made their profits where tax rates were particu- larly favourable. They always complied with the tax laws of all the countries in which they oper- ated. With the exception of Google, which collects royalties for the corporate use of its intellectual property from its subsidiary registered in Ber- muda, thus avoiding the higher taxation in the USA, where that property is admittedly generated, the companies questioned pride themselves on having refrained from seeking refuge in exotic tax havens. Starbucks’ spokesman did, however, re- veal to the stunned MPs that the Netherlands government granted his company major tax con- cessions under a special agreement, the contents of which he was not at liberty to disclose. Tax havens are, then, to be found not only on exotic islands, but also in the middle of Europe.
On the other hand, for all their detection skills, the MPs looked a little helpless, as if confronted for the first time with what are, in fact, the well- known fiscal strategies of multinational corpora- tions. The visibly furious committee chairwoman, Margaret Hodge, even put it to the companies that their international transfers of costs and prof- its were “not illegal, but immoral”. Yet there is no basis at all for this accusation, since the OECD countries, with Britain to the fore, have always been committed to competition among national tax systems and so defended precisely those dif- ferences which globally operating companies ex- ploit to their own advantage.
In the end, all that was left for the MPs to do was to hold out the prospect of angry consumers us- ing their power of boycott. This may indeed be prompted by the television transmission and the internet recording. Of the companies questioned, Starbucks would probably be the easiest to hit, just as Shell was boycotted a few years ago. The
© German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE) The Current Column, 17 December 2012
www.die-gdi.de | www.facebook.com/DIE.Bonn | https://plus.google.com/
© German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE) The Current Column, 17 December 2012
www.die-gdi.de | www.facebook.com/DIE.Bonn | https://plus.google.com/
seizure by Occupy Wall Street activists of a nearby Starbucks branch in New York for use as their co- ordination centre shows how quickly an Occupy Starbucks campaign might be launched with the aid of Facebook and Twitter. To avoid such a cam- paign in London, Starbucks has meanwhile bowed to pressure and announced a “review” of its heav- ily criticised tax practices. Despite this, early De- cember saw the first sit-ins in London branches, and there is serious speculation about the extent to which the loss of image will affect Starbucks’
turnover in the coming year. And half of all Britons say they will not be using Amazon for their Christmas shopping this year.
Dr. Jürgen Wiemann Deutsches Institut für Entwicklungspolitik (DIE), EADI Vice President To development experts the revelations of these
companies’ tax practices come as no surprise.
Developing countries and their advocates in the UN agencies and international civil society have long complained about the tax avoidance strate- gies pursued by multinational corporations. The distortion of competition with the host countries’
domestic companies results not only from the sheer size of multinational corporations, but also from the inability of domestic companies to avoid taxation in the same way. Yet this criticism has led to little more than a number of ineffectual inter-
national declarations. Things are likely to change in the future, the more the OECD countries, too, perceive themselves to be the victims of tax avoidance by multinational and, specifically, inter- net corporations. And the link between tax avoid- ance or evasion and the debt crises in southern European countries is all too obvious.
The current revelations by the internet and life- style companies – and there are more of them than just those questioned in London on 12 No- vember – about their strategic exploitation of tax havens and the tax competition among OECD countries may now at last initiate a period of closer cooperation at European and multilateral level. Thus German Finance Minister Wolfgang Schäuble and his British counterpart, George Os- borne, promise in a joint statement to put a stop to tax avoidance by internet companies. The G20 has also looked into the matter and is in the proc- ess of forming a united front of OECD and devel- oping countries against tax avoidance, tax evasion and tax havens. We should take the politicians at their word and look to see what deeds follow their words next year. This story is by no means finished yet, it is just beginning to get exciting…
