MEPs accuse US multinationals of diverting profits to low tax havens
Amazon, Facebook and Google in line of fire after committee backs proposals to force multinational corporations to pay tax where they make their sales
MEPs have launched a scathing attack on Facebook, Google and Amazon in the European parliament, accusing them of diverting profits worth billions of pounds to low tax havens.
Members of the special committee on tax rulings said they were concerned that major US businesses were paying virtually no tax in the EU countries where they operated, denying governments vital funds.
The committee, which is investigating the scale of tax avoidance by multinationals, is backing proposals from the Organisation for Economic Cooperation and Development that aim to make multinational corporations pay tax where they make their sales.
The OECD’s base erosion and profit shifting (BEPS) guidelines are the culmination of an international project launched two years ago by G20 governments in response to public anger over corporate tax avoidance.
Almost 90 countries have been working together to create an agreed method of integrating the measures into the bilateral treaties already in place, potentially raising up to $250bn a year in extra tax revenue, according to the OECD.
One MEP asked representatives of Facebook why it continued to run businesses in European countries where it failed to generate any profits. “For instance, why are you operating in the UK when according to your accounts you create no value there?”
Facebook’s director of public policy for southern Europe, Delphine Reyre, said 2014, the most recent year for its accounts, was a period of heavy investment in the UK that meant the company failed to produce a profit.
She said the company hired a significant number of staff last year and this was accompanied by awards of shares that depressed profit levels. “We remunerate in shares and that gave rise to a significant tax offsetting opportunity,” she said.
Nicklas Lundblad, a director of public policy and government relations at Google, said the millions of dollars held by the company in Bermuda avoided US corporation tax rather than the tax authorities in the EU. “The money in Bermuda is deferred tax from the US for the purpose of investment,” he said.
Asked by the committee’s chairman, the French Christian Democrat MEP Alain Lamassoure, whether the funds would ever be repatriated to the US, Lundblad said: “At this stage we cannot know the answer.”
Google’s tax affairs have proved controversial since it was discovered that the company benefited from the double Irish avoidance scheme. This involved diverting profits from EU countries to Dublin before sending the funds to accounts in Bermuda.
The three US firms, which were questioned alongside the UK banks Barclays and HSBC, told MEPs the OECD needed to agree on a definition of transfer pricing to prevent companies being taxed by several EU countries and the US on the same profits, undermining existing tax treaties.
They said the OECD needed to agree the wording to create a legal basis for the new rules and, according to Mark Hubbard, Barclays global head of tax, a “level playing field” for corporations to make tax judgments.
But Barry Johnston, director of advocacy at the anti poverty charity ActionAid, said the G20 countries had failed to take the “bold action needed to end tax avoidance in developing countries”.
Speaking after world leaders had left the G20 summit in Turkey, he said: “The BEPS proposals will not deal with the most important issues they face. There is no commitment to ensure that companies pay their fair share of tax. This means that public services, including much needed healthcare and education, will continue to miss out on the $200bn that the International Monetary Fund estimates such countries lose to tax dodging every year.”