Mr. Murphy added, "The financial crisis has changed things. Tax is the scarcest commodity in the whole of Europe. If big corporations don't pay, ordinary people will have to make up the tax or see their services cut."Google said in a statement, "We make a substantial contribution to the U.K. economy through local, payroll and corporate taxes. We also employ over 2,000 people, help hundreds of thousands of businesses to grow online and invest millions in supporting new tech businesses in East London. We comply with all the tax rules in the U.K."
While the U.S. approaches a fiscal cliff of higher income taxes and government spending cuts, American companies are coming under fire in the U.K. for minimizing their tax bills in a country that desperately needs tax revenue. Google, Amazon and Starbucks were called before Parliament's Public Accounts Committee in London this week to be questioned by Members of Parliament on how they manage to pay so little tax in the U.K. Margaret Hodge, the chair of the P.A.C., told them, "We're not accusing you of being illegal, we're accusing you of being immoral." At issue is the tax avoidance strategies the companies use to legally avoid or minimize any taxes owed in the U.K. For instance, Starbucks rarely declares a profit in the U.K. Its CFO, Troy Alstead, explained this is because the U.K. is the most competitive coffee market in the world. The coffee chain's European headquarters is in the Netherlands, where it pays a discounted corporate tax rate. Starbucks U.K. pays intellectual property rights to the Amsterdam division for the use of Starbucks branding and systems, and buys its coffee through a subsidiary based in Switzerland, thus reducing profits in the U.K. At the P.A.C. hearing, Member of Parliament Austin Mitchell joked, "My heart has begun to bleed for you. I'm going to have to rush out and have a double caramel macchiato because you're doing so badly." Companies paying little or nothing in corporate income tax pointed out that they hire people and spend money in the U.K. A Starbucks spokeswoman said in an email that the company has paid $13.6 million in corporate income tax in the U.K. -- over the last 14 years -- and has 8,500 employees. "We have spent hundreds of millions of pounds with local suppliers on milk, cakes and sandwiches, and on store design and renovations. When you take into account the indirect employment created by Starbucks investments in the U.K., the company's extended economic impact to the U.K. economy exceeds $127 million." Google was represented at the hearing by Matt Brittin, the company's VP Northern Europe. He admitted that favorable tax conditions were among the reasons Google chose to make Ireland its European hub. The Irish operation is administered from another tax haven, Bermuda. Amazon's European base is in Luxembourg, where the corporate tax rate is 11%, compared with 24% in the U.K. The company's public policy director, Andrew Cecil, took questions from the P.A.C., but Mr. . Hodge dismissed his answers as "unacceptable nonsense." The online retailer has also come under fire from French authorities, which have recently sent Amazon a $252 million demand for back taxes, interest and penalties in relation to "the allocation of income between foreign jurisdictions" between 2006 and 2010. Lucy Marcus, an expert in corporate governance, said, "Boards tend to make decisions in silos; they don't talk about whether something will look bad, they talk about whether it's legal and best for investors. People really do care about [Corporate Social Responsibility], but boards have been slow to recognize this." The P.A.C. was convened not to put Amazon, Google and Starbucks on trial, but to examine the performance of Her Majesty's Revenue & Customs, which collects U.K. tax, and see if they could do a better job of extracting corporate tax revenue. Richard Murphy, an anti-poverty campaigner and tax expert, said, "The basis of business is trust. It comes down to a matter of whether we believe they will trade honestly and to the highest possible standards, but these companies are not working to the standards they've set themselves up to deliver. They have choices about how to pay tax. Being seen not to pay tax is a serious commercial risk and it can harm your business." U.K. Uncut, a British group similar to Occupy Wall Street , is planning a "day of action" against Starbucks on Dec. 8. Starbucks, with around 750 coffee shops in the U.K., is an easier target than online companies Amazon and Google, and is therefore likely to bear the brunt of protests.