Fresh controversy sheds light on corporate tax avoidanceby
The corporate tax controversy carousel keeps a-spinning, it seems. And now not even your Frosties are safe from the machinations of transatlantic tax avoidance schemes.
Kellogg’s, whose CEO John A. Bryant is a chartered accountant, was thrust into the spotlight this week when it transpired that its UK arm paid no corporation tax in 2016. The cereal giant’s UK subsidiaries did turn a profit - but after recognising numerous losses from elsewhere in the business, the profit quickly turned into a loss.
Kellogg’s reply was a typically terse corporate response on matters of taxation: “We pay all corporate tax according to the laws of the countries in which we operate.”
That’s only a few syllables more than AirBnB’s comment to The BBC: “We follow the rules and pay all the tax we owe.” Airbnb paid £188,000 in UK corporation tax last year despite collecting £657m of rental payments for property owners.
And now, eBay has joined the media circus, too. The UK arm of eBay paid only £1.6m in corporation tax last year. That’s because eBay’s UK arm made a pre-tax profit of £7.7m, according to the accounts, and it was on this figure that the UK corporation tax was levied.
The £7.7m figure was arrived at despite its US parent company’s account stating that the total revenues from its UK operations was £1bn. Again, the response was: they pay the tax they owe and comply with the laws in each jurisdiction they operate.
But this sort of response isn’t enough to satisfy their critics. “The response that they comply with the law in the jurisdictions that they operate is the answer to a different question,” says Jolyon Maugham, a tax barrister and director of the Good Law Project. “It’s not being contended that corporations are breaking the law, it’s that they are acting in a morally poor fashion. To say that it’s legal, doesn’t seem to be much of answer.”
According to Maugham, these companies are playing a dangerous game within a changing political environment. “There’s now a consensus that this sort of behaviour is highly undesirable. The political and pre-tax economic costs of engaging in it are rising,” says Maugham. “It’s absolutely right that government seek to reasonably regulate capital.
“Legally, the tide is turning: the EU is pushing on with its consolidated corporation tax proposals. We now have BEPS. We’re waiting to see what impact the Diverted Profits Tax has. But morally, certainly on this side of the Atlantic, the tide is turning, too, and companies need to understand that aggressive tax avoidance behaviour has consequences.”