EU leaders talk tough on tackling Amazon, Google over taxes

BRUSSELS Wed May 22, 2013 12:42pm EDT

1 of 3. Britain's Prime Minister David Cameron arrives at a European Union leaders summit in Brussels May 22, 2013.

Credit: Reuters/Eric Vidal

BRUSSELS (Reuters) - Britain, France and Germany called for stricter rules to stop companies such as Google, Apple and Amazon aggressively avoiding taxes in austerity bitten Europe, while acknowledging they had done nothing unlawful.

At a summit to discuss energy and tax policy, the leaders of the three largest EU countries took the opportunity at news conferences to lament the impact of corporate tax avoidance, following several cases involving U.S. firms.

The issue has hit a nerve in Europe where many countries are cutting back on social spending and squeezing workers in order to reduce national deficits and debt.

Most recently a U.S. Senate report found that Apple Inc had paid just 2 percent tax on $74 billion in overseas income, largely by exploiting a loophole in Ireland's tax code.

"We cannot accept that a certain number of companies can put themselves in situations where they escape paying taxes in ways that are legal," French President Francois Hollande said.

"We must coordinate at a European level, harmonize our rules and come up with strategies to stop this."

British Prime Minister David Cameron, who has put tax at the top of the agenda for a meeting of the G8 in Ireland next month, was equally clear about the need for coordination steps.

"There is a real chance of seeing the sort of international action that we need to fix this problem," he said. "You can't do it on your own, you have to have that international action and that is why I think today has been a bit of a breakthrough."

France and Britain in particular have grown concerned by the sheer scale of the legal tax schemes.

Monday's U.S. Senate report on Apple Inc followed reports that the British unit of Amazon paid just $3.7 million tax on 2012 sales of $6.5 billion, and similar revelations concerning the UK operations of Google and Starbucks.

In all, officials estimate that EU governments miss out on around 1 trillion euros ($1.3 trillion) a year through the legal tax avoidance schemes employed by such companies and via illegal tax evasion.

German Chancellor Angela Merkel, who avoided commenting on the issue ahead of the summit, expressed her frustration that existing laws were not sufficient to capture taxes fully.

"We will work towards ensuring companies have to pay more where they are based," she told reporters, saying that new rules would affect big companies most, although it many cases companies are basing themselves in low- or no-tax jurisdictions.

HARD TO CLOSE LOOPHOLES

While there is common consent among EU leaders that action needs to be taken to close loopholes and level the playing field on tax policy, little has been done on the issues despite regular lobbying by the Organisation for Economic Co-operation and Development (OECD) and other international organizations.

In a report in March last year, the OECD, a club for wealthy countries, set out in detail how companies were using "hybrid mismatch arrangements" to avoid paying taxes, the very technique that Apple is alleged to have used in its tax planning.

"We have got to make sure as we set those tax rates that companies pay taxes, and that means international collaboration, the sharing of tax information," British Prime Minister David Cameron said as he arrived at the summit.

But officials have dismissed the possibility of immediate steps to close loopholes or any targeting of companies, saying it is primarily up to EU member states to craft the necessary legislation, and to work through wider international forums such as the OECD, G8 and G20 to make progress and close the net.

Eversheds, a global law firm dealing with tax issues, said that while recent cases involving high-profile U.S. companies had pushed the tax issue to the top of the global agenda, it could not be tackled with any quick or immediate steps.

"While the issues deserves this top-level attention, the public should not expect any game-changing developments, and indeed it would be wrong for the EU to try to tackle the issue on its own," said Ben Jones, a tax expert at the firm.

"Uncoordinated attempts by individual countries or blocs of countries to tackle the issue may actually create more tax 'loopholes' or have a detrimental impact on businesses that do not engage in aggressive tax planning."

France has already shown its willingness to take on major U.S. companies, with authorities raiding Google in a 2011 investigation into whether its Paris office conducts sales work. The company was asked to pay 1.7 billion euros in back taxes.

A similar issue has arisen with how Google operates in Britain, with questions raised about whether its sales staff are based abroad, as the company maintains, or in the country, which would create a liability to UK tax.

Google says it follows tax rules everywhere it operates and that references to selling in job ads for British-based staff reflect the fact that it likes people with a sales skills.

(Additional reporting by Adrian Croft and Peter Griffiths in Brussels, Michelle Martin in Berlin and Mark John in Paris; Editing by Will Waterman and Janet McBride)

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Comments (3)
lehigh69 wrote:
So, let’s see: using “legal tax avoidance techniques” are now to be illegal? As if all your income belongs to the government except for that which they graciously allow you to retain out of the goodness of their hearts? As long as at least one country in the world has a less restrictive tax policy, corporations will be able to legally avoid paying taxes. I suggest France, the UK and the rest of the EU learn to live within their means for a change.

May 22, 2013 11:38am EDT  --  Report as abuse
Gaute wrote:
There is probably no reason for the EU to be upset about Apple or Google taxes at all. Will someone please do the math based on iPhone sold from the US to retailers in Europe at arms length prices? The profit margins in Europe would be extremely slim.

I have seen a back of the envelop calculation of the taxable income in Europe from Google if the operation had been organized straight forward with only US parent and EU subsidiaries, giving the sales organization in EU arms length profits for their activity. Slim margins to those who successfully “bid” to become a Google sales rep. If anything the calculation suggested that Europe would end up with less taxes in that structure than we do with the “artificial” structure that is used today.
There is really no tax loss outside the US from Apple and Google. If you want a European tax loss, you have to search among the companies like Siemens, GlaxoSmithKlein and others with their intellectual center located in Europe.

May 22, 2013 2:58pm EDT  --  Report as abuse
2shy4usexyboy wrote:
A simple, unified global tax system that is not dependant on tax, deductible amount (which is different for each independant country) but based on the country whoms citizens purchased goods or service, and how much credit transferred into the major U.S. company of multi-national status. Irrespective of the accountancy maneuvre of the company transferring into a subsidiery company, in a low corporation tax, location a check of where the credit was sent from should cover any deductible tax liability. Since, if it were not for the online buyer purchasing their product or service these large, U.S. multi-national and

May 22, 2013 6:00pm EDT  --  Report as abuse
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