By Michael Northcott Thursday, 25 October 2012

UK and Europe to crack down on foreign firms tax avoidance

David Cameron has demanded an investigation into foreign firms that avoid corporation tax, and the EU is looking to close tax loopholes outside the UK.

The prime minister said yesterday: ‘I am not happy with the current situation. I think the HMRC needs to look at it very carefully. We do need to make sure we are encouraging these businesses to invest in our country, as they are, but they should be paying fair taxes as well.’ 

The comments are a slight change of tack for Cameron, who usually bangs the drum of deregulation, private sector investment and free market principles. 

It is definitely a crowd pleaser, as in recent weeks it has emerged that several large US outfits such as Facebook, Amazon and Starbucks have been paying next to no corporation tax on massive UK revenues. By basing themselves offshore or using the group corporate structure to label their UK operations as ‘loss-making’, they have avoided millions of pounds worth of corporation tax.

In Brussels, work is underway to close a loophole that was allowing Amazon, for example, to charge just 3% VAT on its e-books in France and Luxembourg. This is damaging to UK retailer such as Waterstones, which are obliged to pay the statutory rate of 20% VAT. Brussels says France and Luxembourg have 30 days to raise their VAT rate back to the original 15% to be compliant with EU competition law. 

We suspect neither Cameron’s comments nor the EU’s ultimatum will do much to end this kind of accounting jiggery pokery in the corporate world, however.

Check out MT's infographic on five US corporates running rings around HMRC

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