Amazon, Google accused of tax avoidance by U.K. lawmakers

Summary:Bumbling through, Amazon U.K. and Google U.K. representatives failed to disclose any valuable or insightful data on why their tax record in the country is so low, despite appearing in front of a U.K. parliamentary committee to answer questions.

Both Amazon U.K. and Google U.K. executives were grilled and put under intense scrutiny from the U.K.'s Public Accounts parliamentary committee, a body made up of elected officials charged with keeping government financial affairs in order, as lawmakers accused the two companies of tax avoidance.

Amazon took much of the heat off Google, thanks to one executive who all-but-refused to answer most of the committee's questions, or didn't know himself and was therefore unprepared. That said, Google still took a fair amount of shrapnel to the face from the parliamentary mortar that went off in close-range. 

Screen Shot 2012-11-13 at 09.18.42 (2)
Google, Amazon executives give evidence. (Screenshot: <a href="http://www.bbc.co.uk/news/business-20301381">BBC News</a>)

It comes after months of investigative reports from The Guardian, the Reuters news agency, and ZDNet research that discovered many of the major global technology companies with a U.K. presence pay very little, if any corporation tax by using tax avoidance schemes, such as setting up in a near-by country where the tax rate is far lower.

While tax evasion is illegal while tax avoidance is not. (Evading tax, such as by manipulating a company's books to show that less revenue was generated than actually was in order to lower the tax bill, is different from  using tax avoidance systems , such as making business-related payments to office in foreign country where the tax rate is lower, including Ireland, Jersey, or Switzerland, is not illegal.

The retail giant and search engine firm, Amazon and Google, both came under heavy fire from parliamentary members and may face a repeat grilling over the lack of evidence Amazon's spokesperson gave after he claimed not to have the information at hand.

"What were your sales in the U.K.?" asked one committee member to Andrew Cecil, Amazon's director of public policy, who kept referring to having to "come back to the committee," after he avoided "disclosing the figure" because Amazon U.K. had never done so before.

He was immediately lambasted by one committee member for failing to disclose the figure of its U.K. sales on overall €9.1 billion ($11.5bn; £7.27bn) sales in 2011. "What's the secret?" he asked. Another called it a "ridiculous answer," as they continued to lay into the company spokesperson.

"What are you hiding?" Margaret Hodge MP on Amazon's U.K. taxes.

Margaret Hodge MP, the committee's chair, asked, "What are you hiding?" to which he replied, "We're not hiding anything, chair."

He noted that Amazon.co.uk is the "trading name for a company operating in Luxembourg," and operates as a "pan-European business," allowing for "somebody working in a warehouse in the U.K. [to ship] products bought off of our French website." However, he failed to explain why the firm fails to pay the 23-24 percent corporation tax rate in the U.K.  

She said Cecil was not a "serious" representative for Amazon to put before the panel of representatives. "You've come to us with absolutely no information," she said. "We will order someone [who can give answers] to appear," she warned. 

What Amazon did confirm is that the retail giant, which employs close to 15,000 people in the U.K. to fulfil deliveries and warehousing stocking, operates out of Luxembourg where the tax rate is lower. ZDNet research showed that Amazon U.K. Ltd. only paid 0.4 percent corporation tax in 2011 , while The Guardian said in spite of generating £3.3 billion ($5.24bn; €4.13bn) in the U.K. last year, the firm didn't pay any corporation tax.

Amazon is also under investigation by the U.K. tax authorities as noted in a recent filing with the U.S. Securities and Exchange Commission.

Meanwhile, Google's U.K. unit paid just £6 million ($9.5m; €7.5m) into the Treasury's coffers  (ZDNet research found this figure to be slightly higher:  £7.25 million, or $11.5m ) and also faced a grilling by U.K. elected officials on the panel.

Despite previous attempts by Google U.K.'s managing director Matt Brittin, who previously claimed he was "too busy" to attend the meeting, did make an appearance, but was not any more forthcoming than Amazon in its answers.

Brittin said that 3,000 salespeople operated out of its Ireland office, but only 200 deal with U.K. customers, but noted that despite employing 700 marketing consultants, they would regularly refer clients to the Ireland-based team.

Though Google generated $4 billion in sales in the U.K. last year (£2.52bn; €3.15bn), Google's U.K. unit reported a loss in both 2010 and 2011. 

That said, Brittin was clearly more prepared in his answers and gave details on the company's business. That said, he noted that Google pays as much tax in the U.K. as is required and how the firm operates across European countries isn't breaking any U.K. laws, no matter how morally unjust they may be to the ordinary, hard working taxpayer.

"We follow the rules that [the U.K. tax office] lays out," he said, noting that: "all of the engineering work is done in California." One news website noted that Google U.K. does in fact have engineers working in London, including on Google's search and advertising platform, Google Maps, YouTube and other core infrastructure services.

But because Google's 'value' is created stateside, Brittin said this is why the firm pays more tax in the U.S. than the U.K. Hodge noted that much of the firm's wealth is stored in Bermuda, however, a known tax-haven for the rich, famous and often rather powerful. 

"You're either running the business badly, or there's some fiddle going on," said another committee member of Parliament, while Google is under investigation by French tax authorities over the firm's structure.

Starbucks was also present at the committee hearing, which had been chastized for only paying corporation tax once annually in the past 15 years the firm has been in the U.K., thanks to its "special" tax deal with the Dutch government that allows the U.K. branch to pay little or no tax.

Also revealed in his testimony that the the coffee that is made for you specially in your local chain uses coffee beans not from Guatemala, or the hills of Machu Picchu -- no, your coffee comes from Switzerland, known the world over for its fine coffee producing fields (sarcasm), in which the Swiss office only paid a 12 percent tax rate on its profits.

Hodge later said consumers are "right... to boycott the [three] companies," notably Amazon, Google and Starbucks, because their "ability... to choose where they put their costs and their profits gives them an unfair tax advantage that damages U.K.-based businesses."

Topics: United Kingdom, Amazon, Google, Tech Industry

About

Zack Whittaker writes for ZDNet, CNET, and CBS News. He is based in New York City.

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