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Amazon and Google having a laugh at taxpayers' expense

Whatever angle you come at it from, the state at national level, as well as key global agencies, exist to make life easier for corporations like Amazon and Google when it comes to taxation.

States everywhere may be short of revenue as the worldwide recession continues to take its toll. But instead of demanding more from the corporations, the very opposite is happening. 

The ConDems are telling business they can pay less. In the March budget, they cut corporation tax for the third time since 2010. It’s now fallen to 24% and will be reduced to just 21% next year. The cut will cost the Treasury about £400 million in 2015-16.

Where’s this shortfall to come from? Chancellor George Osborne is demanding £11 billion more in spending cuts in 2015-16, a level which has even frightened most of the cabinet into passive resistance. Front-line services like fire face draconian cuts and mass redundancies following today’s announcement by the government’s former chief fire and rescue officer.

Of course, global corporations do everything they can to avoid paying tax on their operations in Britain. Instead, companies like Amazon are registered in lower-tax territories like Luxembourg. They claim that although they employ thousands of workers in Britain, they are not actually based here!

MPs on the public accounts committee can rant and rage all they want – as they did yesterday when they had Google up before them – but the fact is that the UK tax authorities are pretty powerless to do anything about it. Moral pressure cuts no ice with the Googles of this world.

Take the example of Amazon. A Reuters investigation shows that over the past six years, Amazon has paid just £5.9 million in tax on over $23 billion of sales to British customers. Yet Amazon claims it runs a single European business out of Luxembourg.

Reuters, however, has gathered evidence which shows that Amazon’s UK operations have a high degree of autonomy, and while the corporation likes to identity itself as a virtual company, this is far from the case. Microsoft and Expedia are other firms that claim a similar position in order to minimise tax bills. The investigation explains:

The practice is based on international tax rules which allow companies to conduct ‘preparatory and auxiliary’ activities in a country without creating a taxable presence there. The UK tax authority, Her Majesty's Revenue and Customs (HMRC), has never sought to define in court the limits of what an internet company can do in Britain before it is deemed to have a taxable presence.

However, does such a limit actually exist? Not according to Jacques Sasseville, head of the tax treaty unit at the Organisation for Economic Co-operation and Development (OECD), which advises rich nations on tax policy. He said where sales were conducted online, it was almost “impossible to prove a taxable presence in a jurisdiction, irrespective of how much activity is conducted in that country.”

So with the tax authorities pretty much powerless in the face of transnational, internet-based operations, Osborne is playing along. The cut in corporation tax to 21% puts the rate on a par with Luxembourg’s, although well above Ireland’s 12.5%.

Corporations exist solely to maximise profits, minimise costs (including tax) and increase the market value of traded shares. This is a legal obligation, enforced by the same capitalist state that is at their beck and call. Herein lies the problem.

The state and its agencies through essentially political actions sustain the economic system. They are a perfect example of the division of labour first noted by the economist Adam Smith as capitalism established itself in Britain. That’s why we should never look to the present state to sort out the corporations. That’s not the job of what is now a market state.

Paul Feldman
Communications editor
17 May 2013

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