Google and Starbucks to face questioning over their tax affairs

Margaret Hodge, chair of the Public Accounts Committee (PAC), told the Financial Times that the companies would be asked to give evidence as part of a session about tax avoidance involving HM Revenue and Customs (HMRC). The call follows press coverage of complex tax arrangements allegedly used by the companies to avoid their UK tax liability.

"We want to ask [the companies] for an opportunity to explain why they don't pay proper levels of tax in the UK," Hodge told the newspaper.

Earlier this month a Reuters investigation revealed that Starbucks had paid only £8.6 million in corporation tax since it opened in the UK in 1998. In addition, it has paid no corporation tax in recent years despite sales of £1.2 billion in the UK over the past three years. According to its UK accounts, the coffee chain is making a loss in the UK for reasons including royalty payments and interest on loans from overseas group companies.

In August John Mann, an MP on the Treasury Select Committee, suggested that Google could be called to explain its use of complex tax arrangements resulting in the alleged artificial diversion of its profits to Bermuda. His comments came after the Telegraph reported that the global search company had paid just over £6m tax on a UK turnover of £395m last year as a result of running its UK operations as an 'agent' of its Irish subsidiary.

However, lawyers from Pinsent Masons, the law firm behind Out-Law.com, have said that HMRC "actively targets" foreign-owned companies to see if they owe any extra tax. Information disclosed by HMRC in August under a freedom of information (FOI) request from Pinsent Masons showed that foreign-owned companies were responsible for 44% of the £25bn in revenue "under consideration" by the department's Large Business Service (LBS).

Tax expert Jason Collins of Pinsent Masons said at the time that this proved that HMRC "actively targets" foreign-owned companies to see if they owe any extra tax.

"There is a popular myth that HMRC and the Treasury are so easily charmed by the presence of foreign companies in the UK that they are happy to accept any tax payment that they get," he said. "That could hardly be further from the truth."

Heather Self of Pinsent Masons said previously that the controversy over the level of UK tax paid by multinational companies like Starbucks and Google did not justify a change in the law. Rather, HMRC needed the information and skills to be able to properly enforce existing rules, such as those in relation to transfer pricing between companies in the same group, she said.

"The challenge for Starbucks will be to explain the complexities of their tax position in a credible way to an audience who - based on previous evidence - are likely to be hostile," she said of the news that the company would be asked for evidence by the PAC. "It will be difficult to dislodge the popular perception that they are guilty of tax avoidance, no matter what the facts are."