Amazon, Google, Microsoft et al: It's time to pay your tax bills

Amazon, Google, Microsoft et al: It's time to pay your tax bills

Summary: Two things are certain in life: "death, and taxes." But major technology companies are facing heavy criticism in the U.K. for paying single-figure percentages in tax, when the average U.K. household spends 10-20 percent tax. Where's the justice? And who's actually to blame?

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A troubled global economy, turbulent times in the euro zone, and unemployment levels that continue to rise despite the occasional glimmer of positive growth. 

The U.K., for one, faces a continued "reduce the [budget] deficit" mantra that doesn't seem to be doing much for those out of work or struggling to pay their bills. Sure, the U.K. gets off 'easily' with a free health system and free schooling for children, but it's not free. It boils down to paying taxes. 

But the big businesses aren't pulling their weight: Amazon, Apple, eBay, Facebook, Google -- just to name a few, and the list goes on -- are handing over much, much less than you would expect to the U.K.'s coffers.

The average British household spends between 10-20 percent on income tax per year. And despite my own reluctance to fill out the ever complicated tax forms every April, I know my taxes help run a 'free' society where anyone in financial or medical trouble can receive benefits or healthcare from our collective pockets.

Businesses and companies the size of the aforementioned are supposed to pay their share into Britain's collective wallet through not individual income tax, but mainly via corporation tax.

Corporation tax stood at 28 percent in 2010, dropping to 26 percent in 2011. For the current 2012 tax year it stands at 24 percent, but will drop to 23 percent next year in a bid to make British businesses "more competitive." It may well encourage growth, but it also places the onus of generating that lost 1 percent onto the ordinary individual British taxpayer. (Thanks for that, George.)

Yet what riles the tens of millions of British residents is not as such the amount of tax we each pay, but how little the major billion-dollar technology powerhouses pay by comparison.

Let's take a moment to reflect upon how little corporations actually pay in the U.K. with some figures. I'll keep it in the same consistent style simply for your reading ease, and we'll just skim off the surface from recent news reports. No doubt there are more, but this selection will suffice as mere highlights for now.

(All figures are as accurate as based on reporting from various news agencies, and where possible are verified at the source, such as U.K. Companies House. It's also worth noting that these are subsidiaries of their U.S.-based parent companies, and others exist, for example retail store subsidiaries. These figures just focus on the main U.K. arms of their U.S. parent companies.)

Amazon.co.uk Limited

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0.4 percent U.K. corp. tax

  • Corporation tax paid: No corporation tax in 2011.
  • Revenue: £207 million ($330m) in 2011.
  • Percent tax paid on revenue: 0.4 percent.

The Guardian blew the lid on how Amazon avoids paying tax in Britain. Amazon sells about one in every four books in the U.K., and generated £7.6 billion ($12bn) in sales over the past three years. But while its U.K. "order fulfilment and delivery" business is in fact based in the U.K., its Amazon EU Sàrl sales department is based in Luxembourg -- where the tax rates are much lower -- and is where it makes most of its money.

According to company filings with the U.S. Securities and Exchange Commission, Amazon is under investigation in the U.K. (which could be a routine audit, according to the newspaper) but is also being probed in China, France, Germany, and Japan.

Apple U.K. Limited

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7.8 percent U.K. corp. tax

  • Corporation tax paid: £5.5 million ($8.8m) in 2011.
  • Revenue: £69.7 million ($11.7m) in 2011.
  • Percent tax paid on revenue: 7.8 percent.

First reported by London's Daily Mail newspaper, Apple pays only a fraction of its vast annual revenue in U.K. tax. Apple only recently surpassed the $700 a share mark, pegging the firm's worth at roughly $654 billion, but dropped back down close to $600 a share in the past fortnight. Despite recent jitters, the company remains the world's wealthiest firm. Apple's iPhone division alone is worth more than Microsoft is as a whole company, a fact that may show just how rich Apple is in perspective. 

According to ZDNet's David Gewirtz, around two-thirds of Apple's then $97.6 billion cash pile (at the end of December 2011) was tied up in offshore accounts. However, much of Apple's revenue comes from international markets and should it be taxed on its repatriation to the U.S., Apple would lose out considerably. 

IBM United Kingdom Limited

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1 percent U.K. corp. tax

  • Corporation tax paid: £41.2 million ($66m) in 2011.
  • Revenue: £3.97 billion ($6.36bn) in 2011.
  • Percent tax paid on revenue: 1 percent.

One of the highest earners out of all the major tech giant's U.K. subsidiaries, by comparison it paid very little back into the U.K.'s kitty. IBM is without doubt the most complex companies examined during this article, serving up more than 200 pages of its annual finances.

IBM has a huge foothold in Whitehall, home of the U.K. government, serving up machines to much of central government. It makes hundreds of millions each year from lucrative contracts with the state. Despite this, it pays minimal tax and employs more than a dozen methods to keep its corporation tax bill down, according to the company's 2011 filing.

An IBM spokesperson told the Daily Mail simply: "IBM complies with all tax rules in the U.K."

Facebook U.K. Limited

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0.9 percent U.K. corp. tax

  • Corporation tax paid: £195,890 ($314,000) in 2011.
  • Revenue: £20.4 million ($32.7m) in 2011.
  • Percent tax paid on revenue: 0.9 percent.

Because most of Facebook's sales run through Ireland, where the tax rate is far lower than the U.K. -- roughly 12.5 percent -- the social networking giant pays much less tax than in Britain. Facebook generated $1.2 billion globally during its second quarter, up from 32 percent a year ago, suggesting the firm's finances are not only healthy but on the up. (Facebook announces its third quarter earnings on Tuesday, which will give a fuller and more up-to-date picture of the firm's revenue streams.)

Facebook spokesperson told The Guardian: "We have our international headquarters in Ireland that employs hundreds and a series of smaller local offices providing support services all over Europe. Dublin was selected as the best location to hire staff with the right skills to run a multilingual hi-tech operation serving the whole of Europe." For media novices, that's a massive 'non-answer.'

Google U.K. Limited

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1.8 percent U.K. corp. tax

  • Corporation tax paid: £7.25 million ($11.6m) in 2011.
  • Revenue: £395 million ($633m) in 2011.
  • Percent tax paid on revenue: 1.8 percent.

Google uses the "Double Irish" method to lower its tax bill. Google Ireland employs Google U.K. as an "agent" so all sales pass through Ireland where the tax rate is lower. Google U.K. then receives a commission, but taxes are only skimmed off that figure once costs are deducted. The firm may ultimately face a U.K. parliamentary probe into its tax arrangements if one Treasury Select Committee member gets his way.

A Google spokesperson told ZDNet: "We comply with all the tax rules in the U.K. We make a big contribution to the UK economy by employing over a thousand people, helping hundreds of thousands of businesses to grow online and investing millions supporting new tech businesses in East London." 

Microsoft U.K. Limited

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2.8 percent U.K. corp. tax

  • Corporation tax paid: £19 million ($30.3m) in 2011.
  • Revenue: £663 million ($1.06bn) in 2011.
  • Percent tax paid on revenue: 2.8 percent.

Microsoft has its main European headquarters in Ireland where the corporation tax rate is about half that of the U.K.'s. That said, it also houses data centers in Dublin and employs hundreds of staff. Out of the major technology companies listed, Microsoft does not employ as many techniques to avoid paying tax and pays considerably more than its rivals.

The firm came under heavy fire in the U.S. for avoiding paying tax, but denied any legal wrongdoing. According to the BBC News, Microsoft moved around $21 billion (£13bn) offshore between 2009-2011, a figure that makes up half of its U.S. retail sales revenue, saving the firm $4.5 billion in taxes on products sold within the U.S.

Are you seeing a pattern?

In spite of high sales and healthy revenue figures, these major companies pay only a fraction of what they should do to the U.K. coffers. And I don't doubt for a moment that the U.K. is alone in this. 

There's a simple rule to the British taxation system: tax evasion is illegal while tax avoidance is not. What's the difference? We can be here all day bickering and engaging in fisticuffs over what counts as evasion and what counts as avoidance, but here's a quick run-down. 

In a nutshell: tax evasion is manipulating a company's books to show that less revenue was generated than actually was in order to lower the tax bill. "However, tax avoidance involves measures such as making business-related payments to office in foreign country where the tax rate is lower, such as Ireland, Jersey, or Switzerland. These payments are a cost that brings down local sales and revenue. (Thanks to Channel 4 News for the explanation, which you'll surely be pleased to know that as a publicly-funded broadcaster, its wise words are part-taxpayer funded.)

It's not just the technology super-giants that are holding back from paying into Her Majesty's piggy bank.

Coffee store giant Starbucks was recently found to have paid no tax at all in the past three years, according to a four-month investigation by the Reuters news agency. Starbucks has made over £3 billion ($4.8bn) in the U.K. since its first broke into the European market in 1998, but has paid less than 1 percent in corporation tax since, but according to the investigation the firm generated £398 million ($637m) in revenue in the U.K. since 2009 but has paid zero corporation tax. 

In spite of it being legal, tax avoidance does not make it morally just. 

Despite using tax avoidance loopholes, these major technology companies are not breaking U.K. law, though many see the measures as "morally repugnant", in the words of Chancellor of the Exchequer George Osborne, the U.K.'s chief finance minister. But company shareholders love it because it saves their investment, and companies equally love it because they have more money to spend on their businesses and wages.

These technology giants are playing by the rules, but the problem is the rules are broken. Who sets the rules? The government. And yet the government all but takes it out on the individual taxpayer by making them drag the country out of economic downturn kicking and screaming.

Ultimately, it's down to the U.K. government to close these loopholes, and not down to the companies to extend the hand of moral high-ground and cough up what they're supposed to. But it would be nice to see a little more honesty from these companies, it almost goes without saying.

Image sources: CNET; ZDNet; Sarah Gilbert/Flickr; Apple; Robert Scoble/Flickr.

Topics: United Kingdom, Amazon, Apple, Google, Legal

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9 comments
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  • Cut the spending, cut the need for high taxes, become competitve

    with the countries where these companies have chosen to reside instead. There are not millions starving and dying in the streets in Luxembourg or Ireland.
    Johnny Vegas
    • Modern democracy is a scam in that ...

      it somehow allows those who pay no tax to vote on how much the other people should pay. Tax rate should be flat across board and consists of VAT only without a ridiculous income tax.
      LBiege
  • Bass-ackwards

    The call should be to lower taxes to match the corporate levels.
    baggins_z
  • If the governments close the loopholes, companies go elsewhere.

    Why do you think Ireland created such a tax structure? Because they want big companies like Apple, MS, ect to setup shop there, and not in italy or elseware in Great Britain.

    And do UK companies take advantage of Tax shelters within it's borders, or by moving money to 'divisions' in other countries?
    William Farrel
  • who cares

    I'm happy all that money is coming back to the USA.

    UK, if you want more tax, innovate more instead of trying to rely on someone else's innovations.
    wendellgee2
    • But it doesn't all go to the US taxpayer

      From ethicalconsumer.org:-

      The world’s largest internet retailer collects sales taxes from only five out of fifty US states, exploiting a court ruling requiring a physical presence in a state for sales to be taxable.

      In 2008, Business Week found that Amazon paid a lower percentage of its profits in tax (around 4%) than 488 of the 500 biggest companies in the USA.

      And unsurprisingly, Amazon is not averse to using its profits to campaign against tax liabilities. In 2011, it apparently spent over $5 million collecting signatures to a proposition to amend a new sales tax law in California to its advantage.
      Random_Error
    • Wrong

      Not the US.
      Altotus
  • Not the corporations fault...

    The corporations are paying the England required taxes stated by law. The amount they pay is based on the tax code of every country they operate in. Do you expect the corporations to pay goo-goobs of money to each and every country they operate in basing it on the highest countries tax code? Because of England's high tax structure they choose, in this example, Ireland thus lowering their taxes.

    The folks in England are writing off from their taxes that which their own tax code allows. Why would you not expect that practice to be from corporations as well. Oh, you expect the corporations to setup offices in England to maximize their paying of England taxes.

    Question, does England allow their ships to be registered in Liberia or other country that have lower taxes, thus lowering their taxes to England? Or to maximize their taxes must all English ships be registered in England; I do not know the answer. Does English companies have to pay the maximum taxes in England and other countries they operate in or do they have the ability to differ on their taxes the tax they pay other countries?

    Corporations have write offs, so does individuals. Each does its best to minimize their tax liability to the extent the law allows. Nothing at all wrong with that. Cut spending will lower the debt, lower taxes brings in more money. Same as eat less move more lose weight.
    BubbaJones_
  • There is nothing MORAL about paying taxes

    This article simply highlights the need for tax reform. The so called 'loopholes' are simply poorly constructed tax rules. They are overly complex and while the intentions of the legislators may be good - the reality shows the flaws in their thinking. And many of those flaws are there to pander to interests.
    BajanMike