Amazon told: time is up for tax avoidance

G20 nations hail 'once in a century' agreement to close international loopholes

Tax structures used by Amazon to route billions of pounds from sales to British customers through Luxembourg, paying negligible UK tax, are among a series of international loopholes earmarked for closure in a programme of reforms backed by G20 nations.

The "once-in-a-century" move to patch up holes in international tax rules was unveiled in Moscow by George Osborne and fellow finance ministers from France and Germany, who have together been the driving force behind calls for reform.

France's Pierre Moscovici said the 15-point action plan, which has been produced by the Organisation for Economic Co-operation and Development club of industrialised nations, was a "major breakthrough" and was "at the heart of the social contract".

"It is clear multinational companies have developed an unprecedented know-how for minimising their worldwide tax pressure," he said. "These situations are literally impossible to explain to our fellow citizens."

Osborne agreed: "People and companies have to pay the taxes that are due, it's the only way to operate in a fair and competitive society … Our message is clear: everyone must pay their fair share of tax."

Under current rules, Amazon's £4.2bn annual sales in the UK, which rely on a network of eight mega-warehouses across Britain, are routed through Luxembourg.

Revenue & Customs has no taxing rights over any profits from those sales. Under the proposals, multinationals with warehouses will be taxed in the country where the distribution centres are located.

Friday's OECD plan, which will lead to firm recommendations within 12 to 30 months, has support of the increasingly influential economies of Brazil, China and India as well as the likes of Luxembourg, the Netherlands and Ireland — all of whom have been accused of beggar-thy-neighbour tax policies.

But even as the European trio of finance ministers congratulated one another on the unprecedented show of G20 unity, behind the scenes there were growing concerns that national self-interest could scupper some elements of the plan.

Notably absent from the launch event was the US treasury secretary, Jack Lew. Sources with knowledge of the extensive negotiations said the US was growing increasingly frustrated with sniping from European politicians targeted at some of the most successful US multinationals including Starbucks, Google and Amazon.

Lew used an article in the Financial Times to call on Europe and other economies to knuckle down and focus on fostering growth rather than squabbling over taxing rights. "When [finance ministers] … gather in Moscow, getting people back to work must be top of the agenda," he said. "In many parts of the world, such as Europe, growth is too weak to drive job creation, and it is critical to take steps to bolster private hiring."

His remarks appear to echo recent warnings from big business lobby groups such as the United States Council for International Business and the Confederation of British Industry suggesting the scale of multinational tax avoidance had been exaggerated and draconian measures to stamp it out risked damaging job creation.

While the US accepts there is merit to updating OECD tax treaty rules, senior figures in Washington are quietly seething at the behaviour of French tax authorities, who have aggressively challenged the tax claims of digital businesses such as Google, Microsoft and LinkedIn, raiding their Paris offices in recent years.

Earlier this week, the Guardian reported that American negotiators had in effect blocked more radical French ambitions for new tax rules targeted at digital multinationals. Instead, a fresh OECD taskforce is to be set up and given a year to study business models in this industry and how profits should best be apportioned between countries.

Pascal Saint-Amans, director of the OECD's Centre for Tax Policy, said: "We know the Europeans are very concerned about the digital economy – we have that [concern] in all non-US economies … We all know about the problem of Google not paying tax. It is much more difficult to identify the different business models [and how to tax them]."

Also understood to be a focus of frustration for US negotiators are mixed messages from Osborne and David Cameron on the UK's approach to multinational tax.

On the one hand, the prime minister has sought to make political capital attacking "companies [that] navigate their way around legitimate tax systems, and even low tax rates, with an army of clever accountants". On the other hand, the coalition government has been aggressively courting foreign multinationals by slashing the rate of corporation tax from 24% to an eventual 20%.

From January, Britain has also introduced new rules attractive to multinationals with offshore financial subsidiaries of the kind controversially used by Vodafone to gain a tax advantage.

Most recently, the introduction of a so-called "patent box" tax break for research and development companies choosing to base themselves in Britain has also caused friction at an international level. Such tax breaks are to come under scrutiny in the G20 reform programme.

The Italian lorry and tractor maker Fiat Industrial has recently announced plans to relocate to Britain, attracted by the favourable tax regime. Last year, the insurance group Aon, best known as shirt sponsors of Manchester United, moved its headquarters to London. Tax experts say there is now a queue of major multinationals exploring similar moves.

"I know of more than 40 multinational companies that have been looking to undertake global and regional headquarter relocations into Britain," Steve Varley, the UK chairman of Ernst & Young, said in May.

OECD officials are alive to the risk of the reform agenda being paralysed by in-fighting. Officials have warned: "Inaction in this area … could lead to global tax chaos marked by the massive reemergence of double taxation."

Among those hoping the programme is not derailed are non-international companies in the UK and elsewhere, which have become increasingly vocal in their attacks on the unfair tax advantages afforded to multinationals such as Amazon. Some of Britain's largest high-street chains – including Sainsbury's, John Lewis, Dixons and Mothercare – have all called for a crackdown on Amazon's tax arrangements.


Simon Bowers and Patrick Wintour

The GuardianTramp

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