Starbucks and Amazon grilled over taxes

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The Public Accounts Committee (PAC) heard that coffee giant Starbucks has a “favourable” tax arrangement with the Dutch government

The coffee chain's chief financial officer Troy Alstead told the committee that Dutch authorities wanted the detail of its agreed tax rate to remain confidential, prompting allegations it was a "sweetheart" deal that the US company wanted to keep quiet.

He did admit that the company had a special tax arrangement with Holland on its European headquarters. "It's a favourable tax rate that we have in the Netherlands," he told MPs. "It's not why we're there, but it's an attractive reason to be there."

In sometimes bitter exchanges at the parliamentary committee hearing, MPs questioned Starbucks, Google and Amazon on their tax practices amid mounting public and political concern about tax avoidance by big international companies.

Starbucks has already confirmed it has not paid any UK corporation taxes for the past three years owing to fees paid to its businesses in the Netherlands and Switzerland, including royalties for brand usage.

Chair of the committee, Labour MP Margaret Hodge asked Alstead why a previous finance chief said Starbucks UK had an operating profit rate of 15% in 2007, but posted a loss in the same year.

"It makes people incredibly angry in the current fiscal climate. You have run the business for 15 years and are losing money and you are carrying on investing here. It just doesn't ring true,” said Hodge.

"We're not at all pleased about our financial performance here,” stated Alstead, "the most competitive coffee and espresso market we face is here in the UK."

The committee took issue with Starbucks for having over 8,500 staff in the UK compared to a few hundred in Switzerland and Holland “yet you pay income tax there and not here.”

“We have a global tax rate of 33% around the world. Our tax rate outside the US is 21%. That is higher than most multinationals' global rate. We are an extremely high tax payer. We are not aggressively looking to avoid tax,” replied Alstead, who had earlier denied lying to shareholders.

Starbucks had 'every intention' of making the UK operation profitable and thus paying more corporation tax, he told the committee.

Despite the explanation Ms Hodge said “it seems to us that you are exporting your profits to minimise your tax."

Andrew Cecil, public policy director at Amazon, was then given short shrift as MPs scoffed at his failure to answer a string of questions about the company or refusing to make it public.

He was told it was "unacceptable" that he was unable to explain the corporate structure of the internet shopping firm when he admitted he did not know who owned a Luxembourg-based holding company. Amazon will be called back to the committee to answer the questions that Mr Cecil failed to give.

The committee was particularly exasperated when Cecil could not produce any data pertaining to territorial sales as “we have never publicly discloses this information” a claim “that insulted the intelligence of everyone with a slight interest in finance here” according to Conservative MP Chris Heaton-Harris.

"Your entire activity is here yet you pay no tax here and that really riles us, it riles us,” concluded Hodge.

Google did confirm that it used low tax rates in the Republic of Ireland for its favorable 12.5% level of tax, and well-known tax haven Bermuda for some of its US operations.

However, Matt Brittin, Google vice president for sales and operations central Europe, said that the internet giant employed “appropriate and robust” tax strategy. When Google was accused of avoiding tax, Brittin said "we pay the tax we are required to pay in each country."

He  was asked why the corporate giant was based in Ireland, and he replied that the 12.5% corporation tax was a factor adding "and it's not as expensive as London."

Brittin also argued that as the company is powered by computer scientists based primarily in the US then it should be that country benefiting primarily from its tax. “If Google was started in Cambridge we would be in a very different situation here,” he added.

“That is not the issue. Unfortunately we think you are cleverer than the tax people around the country,” replied Labour MP Fiona Mactaggart.

Raymond Doherty

  

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