EU authorities are aiming to shut down ‘brass plate’ companies in Europe, the practice where multinational corporations create a letter-box subsidiary in one country to cut their tax bill in another, a practice of setting up a subsidiary in a non-European tax haven, as well as taking advantage of tax relief in two countries, known as “double non-taxation”, as well as to close the main tax loopholes and end sweetheart deals that have helped multinational companies avoid billions in corporation tax. In 2014, tax campaigners found one address in Luxembourg that was home to more than 1,600 companies. Under the commission’s plan, multinational companies would be obliged to report profits to local tax authorities, if they are generated in that country. This is an attempt to clamp down on tax-avoidance on highly profitable businesses – a practice that shot to notoriety when it emerged that Starbucks had paid £8.6m in taxes on a reported £3bn in UK sales over 14 years in the UK.
Meanwhile, the UK risks undermining an international clampdown on tax avoidance if it signs more deals like the agreement with Google to recover £130m in back taxes, a tax expert has warned. Richard Murphy estimates that Google should be paying £200m a year in corporation tax, based on the firm’s declared profit margins and sales 2014 sales in Britain of £4.5bn.
“I can’t understand why the deal with Google is so cheap. I’m worried if they are going to repeat that with other companies. What was agreed is far removed from what is required for sustainable corporation tax in future,” Murphy said. “They are undermining the new international tax consensus which David Cameron and George Osborne have worked for, supposedly.” He said the Google agreement was not in line with proposed rules backed by the Organisation for Economic Development (OECD) and supported by Osborne, which link taxes to revenues earned in a particular country. Murphy said: “It’s one thing offering deals for the past and a different thing to offer deals for the future when we’ve had the OECD give a stronger basis for taxation which considers a company as a UK resident.”
Prof Prem Sikka, a tax avoidance expert at the University of Essex said the deal with Google “raised more questions than answers”. He said the company had effectively paid an annual rate of corporation tax of just 2.77% over the last decade. British businesses currently pay coporation tax of 20% of their profits.
Shadow chancellor John McDonnell described the online search firm’s payment as “derisory” and argued the public would be sceptical about what he warned looked like a “sweetheart deal”.