Many of the top online firms, including Google, Amazon and eBay, could be facing huge tax bills if MPs get their way, after they called for HMRC to prosecute multinational companies which avoid paying the correct level of corporation tax.
Some have been found to be paying the Treasury as little as 1.5% on hundreds of millions of pounds of revenue, according to the Public Accounts Committee, when the standard tax rate for companies is 25%.
It has been claimed that eBay’s tax arrangements could have cost the UK and Germany a combined total of $1bn (£620m) since its Luxembourg office became base for European sales.
The office only has nine employees, but eBay Europe Sarl is named as the online retailers’ EU base to allow it to charge customers a low rate of VAT. Under European Union rules, an organisation can use affiliates in Luxembourg to take advantage of the nation’s low rates.
However, the Luxembourg unit doesn’t get a penny of sales, as the firm moves revenues through an office in Berne, Switzerland, thus allowing it to take advantage of the lowest corporate tax rate in Europe.
For eBay, this could result in an investigation from EU tax authorities, which can challenge claims to Luxembourg residence and the benefits it brings if there is reason to believe the base does not have the resources to be the supplier of goods and services.
“I hope that HMRC takes note…and takes prompt action,” said Margaret Hodge MP, chairman of the Public Accounts Committee. “I will be seeking assurance that they are, next time we take evidence from HMRC.”
However, chief secretary to the Treasury Danny Alexander has ruled out the naming and shaming of firms that pay little or no corporation tax. He said such an approach would breach taxpayer confidentiality.
