November 15, 2012 7:41 pm

Cable pledges action on tax avoidance

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Vince Cable signalled that the government would take action against tax avoidance by multinationals on Thursday as retailers Dixons and John Lewis warned of potential damage to the high street from the tax arrangements of rival companies.

Mr Cable, the business secretary, said public anger was building up and he was “sure” the chancellor would address the issue in the Autumn Statement. He said: “Some of them [multinationals] seem to be avoiding tax systematically and this is deeply angering tens of thousands of British companies who do pay their tax properly, so we have to get to grips with it.”

Amazon, Google and Starbucks were accused of aggressive tax avoidance by MPs on Monday, putting pressure on the chancellor to take further steps. Mr Cable’s aide refused to comment before the autumn statement, but one official said the business secretary had “let the cat out of the bag” that an announcement was planned for December.

On Wednesday, Andy Street, managing director of John Lewis, called on the Treasury to examine the tax arrangements of companies such as Amazon, saying that it needed to level the playing field by taxing revenues earned in the UK. Companies “domiciled in a tax haven” would “out-invest and ultimately out-trade us and that means there will not be a tax base in the UK,” he said.

His comments were backed on Thursday by Sebastian James, chief executive of Dixons Retail, and a friend of prime minister David Cameron. “I agree with Andy Street: retailers making profits in the UK should pay tax in the UK,” he said.

Asda, the British arm of Walmart, defended its tax arrangements with the world’s biggest retailer in the wake of media scrutiny. Andy Clarke, chief executive of Asda, said: “We pay a significant amount of corporation tax and we will continue to [do so].”

Richard Mayfield, Asda’s finance director, said Britain’s second biggest supermarket chain by market share paid £163m of corporation tax last year, and had paid £886m over the past five years. He said Asda paid royalties to its US parent, but these were for services it delivered to Asda, including information technology, and help from Walmart’s online shopping team in San Francisco.

Any changes to the way Britain taxes multinational companies will be legally complex. At the G20 meeting last week, George Osborne called for changes to international tax standards to cope with the rapid development of e-commerce, demanding an interim report by the Paris-based OECD in February. The chancellor said he believed that the best way to achieve change “is through international action that ensures strong standards”.

Meanwhile, calls for a turnover tax, which was advocated by Lord Myners, a former Labour minister, are likely to be resisted because it would be illegal under EU laws, which stipulate that VAT should be the only tax on sales.

The Treasury has already moved to tax online gambling for UK customers regardless of where the operator is based, which provides a possible precedent for taxing e-commerce operators. HM Revenue & Customs could also ratchet up tax demands on multinational retailers by arguing that the proximity of their warehouses to customers creates much of their profitability by enabling speedy delivery.

Amazon made British sales of between £3.3bn and £4.5bn in 2011, according to its annual report. Amazon.co.uk, which employs 2,265 people in Britain and reported turnover of £207m in the UK, on which it paid tax of £1.8m, is responsible for providing certain services - picking, packing and delivering goods - to a Luxembourg-based European trading company.

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