Newcastle’s MP calls for government action over web giants’ tax avoidance

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09 Jan 2013

Newcastle’s MP Paul Farrelly has urged the government to take swift action to ensure that internet giants such as Amazon and Google pay their fair share of tax.

Speaking on Monday in a debate in the House of Commons, Mr Farrelly also urged ministers to press for international reform – including at European Union level – to prevent multinationals using artificial arrangements in countries like Luxembourg, Ireland, Holland and Caribbean tax havens to avoid tax on their operations in the UK and elsewhere.

The debate, secured by backbench MPs, came amid growing anger over tax avoidance by web giants, also including Microsoft and Apple, at a time of austerity.

Before Christmas, the Commons’ Public Accounts Committee published a withering report over tax avoidance and executives from Google and social networking site Facebook faced questions by the Culture, Media & Sport Committee, of which Mr Farrelly is a member.

After a public campaign, too, US-owned coffee chain Starbucks also volunteered to pay an extra £10 million after criticism over the amount of corporation tax it pays in the UK.

During the debate, Mr Farrelly cited an investigation last year by the Guardian newspaper which showed that online retailer Amazon had racked up £7.6 billion of turnover in the UK over the previous three years, but had paid zero corporation tax after routing sales through Luxembourg, even though the firm’s warehouses are physically here.

‘It is not just a case of headline corporation tax rates—for instance, ours compared with Luxembourg’s,’ Mr Farrelly told the Commons. ‘But about the special deals that those companies can do with the authorities in Luxembourg, the Republic of Ireland or the Netherlands, through which they pay very little tax and export their profits to tax havens.’

‘We need to do more at European level to ensure that those sorts of special deals do not happen in one jurisdiction in a way that disfavours another jurisdiction.’

‘It is right that the tax playing field should be levelled, because booksellers and record retailers are going out of business day by day in this country.’

As an example of a different attitude to corporate social responsibility, Mr Farrelly drew attention to Potteries-based bet365, the world’s largest internet gaming company, which owns Premier League Stoke City and is the only major online player still based in the UK.

‘It is staying here because the Coates family, which owns it, believe in paying their taxes – they paid £130 million last year through bet365 – and in creating local employment,’ he said.

To stop losing tax, and encourage firms to return, the government is currently changing the regime for remote gambling to a ‘point of consumption basis’, through which bets are taxed where made, rather than accounted for – a possible future model for other business sectors.

Responding to the debate, Treasury minister David Gauke said the tax authorities were being given more resources to address sophisticated tax avoidance, despite sweeping staff cuts, and that discussions had taken place in Europe with other countries including Germany.

He also reiterated the intention to use Britain’s chairmanship of the G8 group of the world’s leading economies this year to address the issue, as well as taking it up at the Organisation for Economic Co-operation and Development (OECD), which settles international tax treaties.

Newcastle’s Labour MP last raised the issue with Mr Gauke last November, when the House considered new treaties with countries including Switzerland and Liechtenstein.

The previous month he also met in the Commons with the Chair of the French Senate Finance Committee, Philippe Marini, who has campaigned over the issue in France. Last May in Brussels, Mr Farrelly also met with representatives of the European Commission and of the publishing, music and film industries - who have been greatly affected at a business level, and feel tax avoidance by the hi-tech giants tilts the playing field further against them.

The Culture, Media & Sport Committee is currently conducting an enquiry into how the government can better help the UK’s creative industries. In a previous report, it highlighted how the loss of advertising revenue online, through the likes of Google, had hit local newspapers hard, in particular.

The UK will hold the Presidency of the G8 throughout 2013, with the key event being a summit in Lough Erne in June, at which the government has said it hopes to secure agreements on greater compliance and transparency in tax arrangements.

‘Tax avoidance by multinationals, and not just the internet giants, is a growing issue affecting hard-pressed governments around the world,’ Mr Farrelly said after the debate.

‘It will stay at the top of the agenda here. It is a big problem for the United States, which loses out greatly, and of increasing concern in France, Germany and the big European economies. It is our job as MPs to press the government to follow words with action, so that we do not waste the opportunity we have in the EU and with our presidency of the G8.’