Tax avoiders 'banned' from bidding on U.K. government contracts

Tax avoiders 'banned' from bidding on U.K. government contracts

Summary: The U.K. government says that major companies that do not pay the full amount of corporation tax will be banned from bidding on public-sector contracts, potentially harming the likes of Google, Microsoft, Amazon and IBM, among others.

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TOPICS: Google, Amazon, Banking
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New rules announced today will see a number of major technology companies—and in one case, a major provider of coffee—barred from bidding on government or public sector contracts in the U.K.

The U.K.'s Chief Secretary to the Treasury Danny Alexander said today that companies bidding on public sector and government contracts will have to make a declaration about their tax compliance (or in some cases lack thereof) before they can be considered. Those that fail to pay the full amount of tax, by using tax loopholes and offshore subsidiaries, could face being refused on such grounds. 

While on some part it is seen as a slap on the wrist for companies accused of avoiding paying the full amount of tax in the country, on the other hand it is also an incentive to those who wish to capitalize upon the U.K.'s IT spending budget, by taking advantage of lucrative government contracts.

According to Bloomberg, Alexander said that the government's stand on "aggressive tax avoidance is totally unacceptable." He noted that, "these new rules are another significant tool as they will enable government departments to say no to firms bidding for government contracts where they have been involved in failed tax avoidance."

"If you want to work for us, you should play by our rules," he added.

It comes a few months after Google and Amazon were both grilled by the U.K. Publc Accounts parliamentary committee, which were both put under the spotlight after U.K. records showed that they did not pay the full amount of corporation tax in the country.

Alexander said the government also plans to expand the current system that seeks to claw back unpaid taxes.. HM Revenue and Customs, the U.K.'s tax department, will set up an "affluence" unit that has already raised £44 million ($68m), by examining the finances of the top half-million people in the U.K. with net wealth of more than £1 million, says The Guardian.

Corporation tax is only paid by companies working in the U.K., and has steadily been declining from 28 percent in 2010 by a rate of about 2 percent each year, dipping to 23 percent for the 2013 tax year, starting in April. 

Many technology firms in particular have avoided paying the full amount of corporation tax. Starbucks hasn't paid any corporation tax in the past few years.

While the move may not affect Starbucks as much as others, technology companies such as Amazon, Microsoft or Google have all been accused of failing to pay the full amount of corporation tax in the U.K.

IBM could also face a tough time renewing its contracts with the U.K. public sector as many government departments rely on IBM servers to power their data centers, for instance.

These firms used the "double Irish" or the "Dutch sandwich" tax avoidance methods of passing sales through a third-country where the tax rate is far less, and paying commission back to the U.K. office, which is only taxable once costs have been deducted. This ensures that the vast amount of wealth remains offshore, keeping its often U.S.-based headquarters in profit and its subsidiaries making a loss.

Numerous technology companies speaking to ZDNet say they "comply fully" with all the tax rules in the U.K., but the ongoing argument is that it's the government's tax rules that are broken. If the tax rules are 'fixed' it could see many major companies pulling out of the U.K. altogether. 

Topics: Google, Amazon, Banking

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53 comments
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  • Front

    all they need is a local company paying local taxes to front for them...
    wright_is
  • Full Amount?

    Are the companies breaking the law? I assume they aren't, otherwise they'd be in court, rather than getting a stern lecture from people that haven't told the truth since birth. Government isn't like donating to a charity, at least with a charity you can see how much is chewed up by bureaucracy. Who in their right mind would be willing to pay more to sleazy car salesmen if they don't have to? Basically the government can't get it legally so now they are resorting to extortion, what's next drones flying over Google/Amazon?
    relwolf
    • No laws broken

      Other than the laws of unintended consequences. Over my 25+ years in the IT industry Government procurement has sucked up to international companies to the detriment of the UK IT industry. Companies who promised lower initial costs for products & services supplied from interesting and exciting places like California were preferred over . They ignored the benefits of buying the same products & services from British companies based in boring places like Dudley or Slough, benefits like Company Taxes getting paid here, workers paying PAYE being employed here, subcontractors, accountants, delivery firms and drivers.

      British IT industry sacrificed on the alter of short term gain - because government wanted stuff cheaper and cheaper and cheaper and forgot that it all impacts on the economy

      You here it in the US today 'the chinese are stealing our jobs' yes exactly same reason short term thinking
      MaxiMonkey
  • So, let me get this straight

    The UK government is saying that companies obeying UK tax law will not be allowed to bid on government contracts unless they willfully refuse to take advantage of certain deductions allowed under UK tax law. I guess it's nice to see that it just isn't U.S. politicians who are certifiably insane.
    baggins_z
    • +1.

      Real title: 'UK pols upset that large US tech giants are taking advantage of gaping tax loopholes meant only for their cronies.' Video at 11.
      beau parisi
    • Bidding on government contracts...

      ...is a privilege, not a right; that is to say, it's not a moral entitlement. The question is, how does the government go about doing this and will it cost more money than it's likely to bring in?
      John L. Ries
    • Not deductions...

      By offshoring their business to countries that have more favourable tax laws, the don't pay much, if any tax in the UK.

      They do this by not actually doing any business in the UK, the do the business in Eire, they just have support staff in the UK, which is a cost, meaning that the UK "subsidiary" has little or no income, after it has paid the staff.

      The government is trying to say, if you want to do business with us, you need to actually be based in the UK and pay UK taxes for the work you do here and the sales you make here.

      In the end, it is tax loopholes which allow them to do this morally questionable, if legal tax dodge.

      If the government want the companies to pay UK tax, they need to close the loopholes, but that is in no companies interest, which means fewer lucrative consulting gigs, when they leave office, which means they make some noise to make the public think they are doing something, whilst keeping the status quo.
      wright_is
      • "morally questionable"

        Morals do not and should not enter into tax decisions. The Corporations (directors) have a duty to the shareholders to maximize their wealth, which means paying as little in taxes as legally possible. That is also what you do as an individual in any tax jurisdiction. I do not see anybody offer to pay higher taxes because it is "moral" to do so.

        If countries do not like how certain corporations behave tax wise, they can negotiate "better" tax treaties. This might be a better use of their time/resources than negotiating oppressive intellectual property treaties.
        D.T.Long
        • The problem with that philosophy is...

          ...that managers who cheat one set of constituents will almost always cheat all the others, if they think they can get away with it, and absentee stockholders are usually an easy mark.

          "Leave your morals at the office door" was never a viable philosophy of business ethics. What it's mostly good for is making sure that people with consciences go into other lines of work and instilling anti-corporate attitudes among the electorate, which inevitably manifest themselves in public policy.
          John L. Ries
          • Forgot to mention

            Amoral behavior at the office has a tendency to creep into people's private lives, thus helping to undermine the trust that a free society needs to function. Likewise, free markets need trust to function properly.
            John L. Ries
          • The government is not a "constituent"

            Governments simply set the rules for all the players to play by that will (hopefully) benefit the governments' constituents, which are the voters. Tax policy is one of several important tools for governments to use to achieve multiple objectives, such as creating jobs/wealth, collecting revenue, providing services, re-distributing wealth, protecting the environment etc.

            Optional "moral/ethical" acts on the part of a corporate entity is invariably part of advertising/promotion/brand building. With an open and connected world and better informed consumers, corporations will act "morally/ethically" when they feel that it is in their best interest to do so. In other words, their acts, not legally required, are still based on self-interest and not "moral/ethical" considerations at all.

            How much more than the legal minimum tax payment would be "moral"?
            D.T.Long
          • The general public is a constituent

            And government is supposed to act in the public interest. And governments are *not* required to even recognize even the existence of corporations, much less to allow them to operate tax free. Governments charter and recognize corporations because they believe it to be in the public interest (or a convenient source of tax revenue; take your pick); not because limited liability is a fundamental human right.

            If you don't want to pay corporate taxes, then do business in your own name, take full responsibility for your commercial activities, and stop whining. But if you insist on making yourself obnoxious to the communities in which you do business, don't be surprised if people, and the politicians elected to represent them are less than sympathetic.
            John L. Ries
          • Which is more important to the public interest...

            the government, or the corporations that provide the jobs to the public?

            When it comes to the functions for a government, it should not be to be the controlling figure over the public sector economy, which is where all wealth originates that governments depend on, and people depend on.

            Control of businesses, is not a function which governments do well, and punishing success, is very detrimental to the whole country, where the country's economy will soon become stagnant and unproductive and eventually, collapse.

            The UK, along with the rest of Europe, are in recession, and a lot of that recession is because of the many actions which those governments took to control the economy which ended up harming businesses.

            The UK is doing the exact opposite of what it needs to be doing, and what needs to be done, is to encourage businesses to compete and create jobs. In fact, the biggest stimulus that an economy could ever get, is to remove corporate taxes on all businesses, which would then leave massive amounts of cash in corporate hands which they then could use to expand businesses and create jobs.

            All corporate taxes are regressive, because, instead of promoting growth, they stop growth, which then eliminates jobs.

            Plus, all corporate taxes end up being paid by the consumers, which then makes life a lot more expensive to those consumers, which in turn means that, they will be spending less for products and services, which eventually takes a toll on the whole economy and many of them will enter into recessions and depressions. That is exactly what is happening right now in all of Europe, and even the economic stalwart of the EU, Germany, has shown the beginning of a recession, with their last quarter showing a decline of .6 percent. Not good! Not good for the whole continent, and not good for the UK either.

            When trying to dig out of a hole, it's not advisable to make the hole deeper.
            adornoe
          • So should incorporation be free?

            Would that not put small businesses, which are mostly sole proprietorships, at a competitive disadvantage?

            Besides, according the the theory of pure profit maximization, business should charge whatever the market will bear and pay their non-managerial employees the least they can get away with without seriously risking defection. So why do you believe that tax free corporations wouldn't pass all of the savings on to their stockholders?
            John L. Ries
          • It is not about "don't want to pay corporate taxes"

            It is about paying the minimum amount required by law - no more, no less. If governments want more, they can raise corporate rates. If I move elsewhere, I move elsewhere. If I take advantage of legal "loop holes" via international transactions, then tax treaties can stop that.

            The solution is generally quite simple, but governments cannot cater to lobbyists on the one hand by creating tax "loop holes", and then complain when someone who did not contribute to their (re)election campaign uses those same "loop holes".

            As I said above, international tax treaties is the way to solve this problem, and not lecturing corporations about ethics and morals. If governments put as much time and effort into international tax treaties as they apparently put into abusive intellectual property rights and their enforcement as well as illegal spying on their citizens, perhaps we'd be in a better place and the governments just MIGHT have claimed the moral/ethical high ground. As it stands, many of them are worse than the corporations they complain about.
            D.T.Long
          • Coyote vs Road Runner

            If you try to game the system, then don't be surprised if legislators try to change the rules, or (as in this case), governments decide to favor businesses that either can't or don't play games. What we really should have, of course, is a simple tax code with relatively low rates and few, if any subsidies. It was a good idea in the 1980s and is a good idea now. But I see tax policy as a pragmatic issue, not a moral one, unless people are being charged more than they can reasonably pay (and I think some people are) or the level of taxation cannot be justified by the public benefits accrued.

            In any case, corporations have no moral rights at all; not even the right to exist (but their owners and employees do). Corporations receive the benefit of limited liability; they should be charged for it whatever the market will bear.
            John L. Ries
          • >> corporations have no moral rights at all

            and governments do??

            Civil servants are, generally, not civil with those who pay their wages (tax payers) but they do not serve the same very well.

            Here is an example of how desparate one government was to get more money. An idea floated by a silly servant had to do with your mortgage. When you paid off your mortgage you all of a sudden had extra money. Rather than let you put that back into the economy (with all its hidden taxes courtesy of the same government) someone thought it would be a good idea to create the imputed rent. If you paid $2,000 per month mortgage you would now add $24,000 extra income onto your earned income to then be taxed at 30%. Once the press leaked that idea it became political suicide and the government quickly back peddled.

            Governments made the rules (with all the loopholes) and then get mad and stamp their feet when corporations use those rules. I respect few corporations and fewer governments.
            dave01234
          • Governments don't have rights either

            But they do serve a useful function and even in less democratic societies (which seem to be preferred by many Talkbackers around here), rulers have a stake in the general prosperity of the country, if for no other reason than prosperous countries are easier to govern than ones that aren't.

            The limited liability corporation may well be useful, but it represents a massive government intervention into the economy that has the effect of greatly reducing the risk of doing business for large firms, thus giving them a competitive advantage over small ones they wouldn't otherwise have (this has the effect of concentrating the market, thus reducing competition). They are creatures of the states that issue their charters and should be regarded accordingly.
            John L. Ries
          • John: You're thinking is along the lines of what the Soviets thought,

            and their thinking was that, government had all the rights, and the people and businesses had only the rights that government would allow them. In the U.S., the constitution was set up with the opposite of what you believe, and the Soviets believed.

            Corporations have more rights than governments, at least in the U.S. Corporations and people are the ones in control of how governemnt works, and not the other way around. Corporations, and all businesses, and all the people, are the rulers, and the government is there to serve the people. Not the other way around. Government does not grant a right to conduct business to a corporation. Government issues licenses, which is not the same as granting rights. Government regulates the business environment, but that is not the same as controlling a business.

            Sole-proprietors, are business owners, and, taxes for the owners are collected as if they were a regular taxpayers, with a few more rules and regulations and reporting requirements. But, they are still businesses which report income, but, not at the level of a bigger corporation with multiple or many employees. The corporation itself should never pay taxes, but, the employees should, and a sole-proprietor is an "employee" of him/herself.

            The fact is that, corporations still don't pay taxes, and the corporate tax system was set up to deceive the regular tax payers, who are not aware that, they are the ones paying the corporate taxes.
            adornoe
          • Corporations are *created* by governments

            In the old days, corporate charters were granted by kings or legislatures and were accorded only the privileges granted therein. The modern general purpose/general law corporation only became commonplace in the late 19th century and was not seen in the U.S. as having the same rights as natural persons until the 1890s (which I think was a bad decision that should still be reversed). To this day, corporations are chartered by governments and the incorporators pay for the privilege, as they should; after all, investors get the benefit of not being held responsible for the acts of the corporation, and can't lose more than they invested (that should cost something, if only to keep it from being overused). If business owners think incorporation is more expensive than it's worth, then they still have the option of operating as sole proprietorships or general partnerships, which nearly all commercial firms, large and small, were before the 20th century.

            Perhaps U.S. corporate taxes are higher than is useful, but I fail to see the advantage to the public of eliminating them entirely. And investors who are annoyed by the prospect of double taxation have the option of taking their money out of the stock market and employing it in some other way, to include starting their own businesses, if they think it more profitable.

            And given that the Soviet Union was never in the business of chartering, much less taxing or regulating commercial corporations, or any other institution independent of the Communist Party (even cooperatives nominally owned by their members were completely controlled by the Party and had been since the 1920s), it's silly to even bring it up.
            John L. Ries