UK Labour Calls For Corporate Tax Reform

May 19, 2013

KONICA MINOLTA DIGITAL CAMERABritain’s Labour Party — tapping into mounting public discontent over corporate tax avoidance prompted in part by Google’s use of Ireland and the Netherlands to shift billions of dollars of earnings to Bermuda — wants the UK government to push for new international rules to force companies to report profit and tax payments country-by-country.

British campaigners say the move, which is receiving increased support internationally despite strong opposition from business, would deter companies from shifting profit into “tax havens” where they have no staff or sales, according to a report today [May 19] by the Reuters news agency.

A committee of Westminster lawmakers has already accused Google of “unethical behavior” for avoiding taxes in Britain by shifting profit from UK sales to an untaxed unit in Bermuda.

Earlier this year Reuters reported that Google takes advantage of double taxation agreements [DTAs] between Ireland, where the Internet search firm has its European base, and other countries, to shelter billions of dollars each year from tax.

Most of Google’s European income flows to Ireland untaxed, thanks to DTAs, and most of this income is then sent to the untaxed Google entity in Bermuda.

Google says it complies with tax rules in every country where it operates and the company’s executive chairman Eric Schmidt is also due to meet with Prime Minister David Cameron at Downing Street on Monday

The Prime Minister has said corporate tax avoidance will be discussed at the annual summit of the Group of Eight leading industrial economies, which Britain is hosting next month in Northern Ireland.

He has urged companies to be more transparent but has only proposed voluntary measures.

Companies say country-by-country reporting would impose unreasonable administrative burdens.

But campaigners say firms fear being embarrassed by highlighting how they frequently pay low or no taxes in countries where they have big sales and how they report big profits in tax havens.

The standard could also lead to companies revealing that they earned no money in countries where they told investors they operated profitably.

The European Union [EU] agreed earlier this year to force European banks to report profit on a country-by-country basis as part of measures to ensure they hold enough capital.

The US and EU have also agreed measures to force companies in the extractive industries to publish tax and other payments to resource-rich nations, to reduce corruption.

The opposition Labour Party on Sunday issued a new policy document on corporate tax reform which backed forcing companies to publish figures on revenues, profit and taxes in each country that they operate.

Ed Miliband, the Labour leader, has said it was up to British politicians to change the laws on taxes, but they also had a responsibility “to talk about the kind of society we want to create and what the responsibilities of a company like Google are”.

“I don’t think they are living up to their responsibilities at the moment,” he said. “It is part of a culture of irresponsibility. If everyone approaches their tax affairs as some of these companies have approached their tax affairs we wouldn’t have a health service, we wouldn’t have an education system.”

Ernst & Young, one of the “big four” global accounting firms which audit most of the multinational corporations, has warned clients that country-by-country reporting may become a global standard unless they come up with an alternative.

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