Are Amazon and Google the lucky beneficiaries (or shameless exploiters, if you prefer) of tax rules that were designed in a pre-internet world? Or are the rules adequate? Is it just timid implementation by HM Revenue & Customs that allows the internet giants to pay miniscule levels of corporation tax in the UK?
Answers to these questions are overdue. The government is behaving as if the tax problem is so fiendishly complicated that only a full re-write of the system by the members of G8 will suffice. That heroic undertaking, if it happens and succeeds, would probably improve matters. In the meantime, though, the public wants to know why businesses that look and behave like UK undertakings aren't being taxed as such under the current rules.
As we report, Amazon is employing staff in Slough to negotiate deals and contracts with UK publishers. How can that not be considered an activity established and carried on in the UK? That the entity that generates the final invoice is based in Luxembourg ought to be irrelevant.
Reuters a few weeks ago discovered a similar ploy at Google. The search company openly states on its website that its London office is engaged in "sales". But then it argues that its relevant London-based staff are merely encouraging a sale that takes place in Ireland, where the rate of corporation tax is lower than in the UK.
Google will on Thursday attempt to defend this arrangement for a second time at a hearing of the public accounts committee. Margaret Hodge, chair of the committee, says she may now also recall an Amazon executive to testify. Of equal interest, though, will be the testimony of the two HMRC representatives – Lin Homer, chief executive and permanent secretary; and Jim Harra, director general of business tax.
The question for them is: what is stopping you from treating Google and Amazon as having a "permanent establishment" in the UK, in the tax terminology? Common sense says that when a company employs staff in the UK to conduct trade with UK customers it is doing business in the UK. If HMRC thinks its hands are tied, it had better explain why. Did it even challenge Amazon and Google's descriptions of their businesses?
