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Pay your taxes, Europe warns multinationals

Britain, France and Germany are pushing for the European Union's 27 member nations to share financial intelligence and cooperate on other steps to crack down on corporate tax avoidance.

May 23, 2013|By Henry Chu, Los Angeles Times
  • Newly minted 2-cent euro coins at the Bank of Greece's Printing Works Department and Mint in Athens.
Newly minted 2-cent euro coins at the Bank of Greece's Printing Works… (Simon Dawson / Bloomberg )

LONDON — European leaders fired a warning shot in the battle against multinational companies that exploit loopholes or set up complicated schemes to minimize their tax bills, calling for collective action to thwart such practices.

Britain, France and Germany are pushing for the European Union's 27 member nations to share financial intelligence and cooperate on other steps to crack down on corporate tax avoidance, which has emerged as a hot-button political issue on both sides of the Atlantic.

Just as Apple Inc. and its executives were in the spotlight this week in the United States over the technology giant's tax practices, Google Inc., Amazon.com Inc. and Starbucks Corp. have been objects of wrath in Europe in recent months for creative accounting methods that appear to allow them to pay as little into the public purse as possible.

This week a Senate subcommittee released a blistering report that detailed how Apple used an elaborate web of offshore subsidiaries to avoid paying billions of dollars in U.S. taxes. By keeping profits in other countries, Apple reduced its effective tax rate to as low as 24.2% in 2011.

"I believe in low taxes for businesses because we've got to encourage investors, we've got to encourage jobs," said David Cameron, Britain's Conservative prime minister. "But we've got to make sure as we set those tax rates that companies pay taxes. And that means international collaboration, sharing of tax information."

Cameron's comments came at an EU summit Wednesday in Brussels, where leaders agreed to try to step up efforts to set up an automatic exchange of tax information between all EU states.

Officials estimate that individual and corporate tax avoidance and evasion cost Europe more than $1 trillion a year.

But coordinated efforts to curb those practices have been stymied by countries such as Austria and Luxembourg, whose banks jealously guard their secrecy, and Ireland, whose low corporate tax rate has encouraged companies to route profits and earnings there.

Cameron also pledged to make a clamp-down on tax avoidance and tax havens a top agenda item when Britain hosts next month's Group of 8 meeting in Northern Ireland.

Whether Big Business is paying as much tax as it should has become a sensitive question in Europe as residents grow weary of painful austerity programs and spending cuts. Whistle-blowers and activist groups have uncovered alleged "sweetheart deals" cut by big corporations and governments eager to keep them operating in their countries.

Last November, France slapped Amazon with a bill for more than $250 million in back taxes, interest and penalties that it said the online retailer dodged by moving profits around its branch offices in Europe.

Booking revenue or signing contracts in nations with low corporate levies, such as Ireland, even if the actual business is conducted in another country, has been a popular method for companies to shrink their tax bills. Amazon is contesting the French government's claim.

Starbucks, too, has been accused of using legal but ethically dubious accounting ploys to avoid taxes. Executives drew widespread ridicule in December when they declared that the company would voluntarily fork over an additional $30 million to the British government.

Rather than abate public criticism, the announcement intensified it, spawning allegations that the amount fell far short of what Starbucks ought to be liable for and that it seemed to regard tax as some sort of gift to the public instead of a civic responsibility.

And last week, a panel of British lawmakers hauled Google executives over the coals for its tax strategy, which allowed it to pay about $9 million in corporate tax in 2011 despite sales to advertisers and other buyers in Britain of nearly $5 billion. Many of those sales were sealed in Ireland and thus out of the reach of British tax authorities.

"You are a company that says you do no evil," said lawmaker Margaret Hodge, alluding to Google's motto, "Don't be evil."

"I think that you do evil," Hodge said, denouncing the company's tax policies as "devious, calculated and, in my view, unethical."

In the Observer newspaper Sunday, Google Chief Executive Eric Schmidt, who once described his company's tax strategy as "capitalism," wrote that the firm would welcome "meaningful tax reform" not just in Britain but globally.

Swedish Prime Minister Fredrik Reinfeldt said Wednesday that businesses had an obligation to contribute to society.

"These companies ask for a lot of investments in infrastructure, in research and development. They want to have well-educated staff members," Reinfeldt said. "Well … pay your taxes. Then we can afford all of these investments."

henry.chu@latimes.com

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