In light of recently-exposed tax avoidance in major international companies trading in the UK, the Public Accounts Commitee (PAC) – made up of a group of MPs – is putting pressure on the government to change legislation that allows businesses to avoid paying millions in tax dollars.
This change is likely to have worldwide implications.
Who Isn’t Paying Taxes?
The three major concerns who have been under the spotlight, and subject to investigation, are Starbucks, Google, and Amazon.
Despite all three companies reporting substantial and rising profits in the UK, they paid little tax or, in the case of Starbucks and Amazon, none at all.
Facebook and eBay have also been linked to tax avoidance, joining the growing number of multinational companies who make billions from the British economy, but pay back negligible amounts.
How do Businesses Avoid Taxes?
Tax avoidance differs from tax evasion, in that it is carried out within existing legal guidelines and breaks no tax laws. These companies have not been accused of evasion, but of working within legal loopholes to minimise their tax costs.
Multinational firms have opportunities to reduce their tax bill that other, smaller, localised firms do not, as they can move profits between international branches, favouring countries that offer the lowest tax rates. Amazon, for example, processes British profits from its offices in Luxembourg, whilst Starbucks has avoided paying tax in the UK by working under tax laws in the Netherlands.Larger, more successful companies also have increased access to expensive, specialised accounting professionals who can work with the firm in order to ensure they are paying the minimum amount of tax possible. The irony of the situation is that the more successful a company becomes, the more the potential to avoid tax increases as they become increasingly able to use the services of highly paid tax executives.