Alf Young: Time to throw the book at them all

GEORGE Osborne’s condemnation, in last month’s Budget, of tax evasion – or even aggressive tax avoidance – as “morally repugnant” was aimed at the tricks very high-earners get up to, to pay less tax than their cleaners. But will the strong language the Chancellor chose to describe his abhorrence of such practices be matched by actions, by governments everywhere, to ensure every taxpayer, individual or corporate, pays their proper dues?

In last year’s Budget Mr Osborne closed a VAT loophole that allowed some of the best-known names in online retailing in the UK to set up subsidiaries in the Channel Islands to sell CDs, DVDs and other low-cost items free of the 20 per cent sales levy. That loophole closed this week after the governments of Guernsey and Jersey failed in the High Court in London to preserve it. Their pitch, in part, was that closing it will push unemployment on the islands up by some 50 per cent.

One of the retailers now denied that loophole is Amazon. But this week, thanks to sterling work by The Bookseller magazine, we learned something much more shocking about the world’s largest online retailer. Over the past three years, Amazon has racked up sales of at least £7.6 billion here, but hasn’t paid a penny in tax to HMRC on the profits these UK sales generated.

Its operations here, including a burgeoning presence in Scotland, recently lubricated by another £10.6 million handout from the Scottish government, are mainly classed as “order fulfilment” sites. Since 2006, all sales from the Amazon.co.uk portal have been channelled through Amazon EU Sarl, based in tiny Luxembourg. The same thing happens to Amazon sales in all 27 EU member states.

The European single market continues to generate a string of tax minimisation opportunities for powerful multinational corporations, determined to exploit the system to their own financial advantage. This is not a new story. But now, in an age of austerity across many western economies, the Amazon chapter is a revelation that will rankle with millions of hard-pressed individuals who are paying higher taxes and facing benefit cuts as their national governments struggle for fiscal credibility. It will rankle, too, with millions of small, localised businesses, struggling to compete with the online behemoths and survive.

Back in the heyday of Silicon Glen, computer companies like Compaq would minimise the profits attributed to their assembly operations in Scotland, while channelling their main profits into sales and marketing subsidiaries located in lower-taxed jurisdictions, such as the Netherlands. In the jargon, it was all about transfer pricing. But in the hands of creative accountants it could wipe countless millions off corporate tax bills.

Europe has its single market. Yet, despite the best attempts of the commission in Brussels to push for greater fiscal harmonisation, member states inside and outside the eurozone still retain most of the power to set their own tax rates, including those on corporate profits. At a time of weak growth and rising unemployment, politicians are, in the main, using that power to reduce corporate tax rates in the desperate hope of luring the Amazons of this world to their shores.

The SNP government’s main tax aspiration for an independent Scotland is to reduce its rate of tax on corporate profits below that in the rest of the UK and nearer to the 12.5 per cent currently levied in Ireland, so that more multinationals will invest here. But George Osborne is already embarked on big cuts in UK corporation tax. At the start of 2088, the main UK rate stood at 30 per cent.

Today it is 24 per cent. By 2014, before Scotland gets its independence referendum, it will be down to 22 per cent. The Chancellor says he has aspirations to get it down to 20 per cent, in line with the rate smaller companies already pay.

That, as he acknowledged in his Budget speech, is “18 per cent lower than the US, 16 per cent lower than Japan, 12 per cent below France and 8 per cent below Germany”.

So far, in this race to the bottom, Alex Salmond has been silent on how much lower than that he intends to take the rate of corporation tax in an independent Scotland. But the thrust of his intentions are not in doubt. Our First Minister would cut that rate as far as is necessary to lure such investment here.

But now that he knows, like the rest of us, just how far multinationals like Amazon will go to avoid paying any tax on their profits, is he having any second thoughts on the wisdom or sustainability of such an approach? In speech after ministerial speech, we get a litany of the multinationals that continue to invest in Scotland, whatever the uncertainties about our constitutional future.

In a speech last month, Mr Salmond lauded “investments from Amazon, Michelin, Dell, Gamesa, Aveloq, Samsung and [Spanish-owned] Scottish Power”. Osborne plays the same game. The week after his Budget he went to the Google campus in Shoreditch, east London, to laud the world’s leading technologies flocking there, “including Cisco, Amazon, Airbnb, Qualcomm, General Assembly and Vodafone”.

Amazon isn’t alone in so ordering its corporate architecture that it pays as little in corporate taxes as it can get away with. Companies like Google, Kraft, Vodafone, Microsoft and Apple do exactly the same. If aggressive tax avoidance really is morally repugnant, isn’t it time governments, instead of pandering to the growing power of the multinationals, found the courage to stand up to them and took steps to put their relationships with them on a more level footing?

That’s what Richard Murphy argues in his book The Courageous State. You can even buy it on Amazon. But I fear we won’t be seeing such acts of political courage anytime soon. Politicians, including our First Minister, seem fixated with the headlines and picture opportunities that come from big job-rich investments like Amazon’s in Fife and Edinburgh, even if the jobs involved are poorly paid, low-skilled, seasonal and part-time. And the impact on smaller, local enterprises, competing in the same sectors, is dire.

There are plenty of things that could be done, even at an individual government level. For instance, why can’t the UK government order our tax authorities to publish, annually, the corporation tax paid by all businesses with operations here and turnovers in excess of, say, £5m? And the effective tax rate that represents.

Then we could all begin to judge what kind of corporate citizens we are doing business with.