UK lawmakers criticised executives of Starbucks
Britain's Public Accounts Committee (PAC), which is charged with monitoring government financial affairs, invited the companies to give evidence amid mounting public and political concern about tax avoidance by big international companies.
Britain and Germany last week announced plans to push the Group of 20 economic powers to make multinational companies pay their "fair share" of taxes following reports of large firms exploiting loopholes to avoid taxes.
Amazon received a $252 million back tax claim from the French tax authority in September, related to its practice of channeling European sales through Luxembourg. The company said it was fighting the claim, referred to by an Amazon official at the hearing.
Members of Parliament (MPs) on the committee quizzed Starbucks Chief Financial Officer Troy Alstead about how the group's UK unit managed to report 13 years of losses.
"You're either running the business badly, or there's some fiddle going on," Austin Mitchell MP said.
A Reuters report last month showed that Starbucks had paid no corporation, or income, tax in the UK in the past three years and had paid only 8.6 million pounds since 1998.
Over this period it sold 3.1 billion pounds worth of coffee, prompting criticism from politicians and media commentators.
Alstead denied Starbucks was shifting profits out of the UK and blamed high rents for contributing to the company's troubled record in the UK.
He said the UK business only made a profit in the UK once, in 2006, despite him telling analysts on a conference call in 2009 that the UK unit was profitable and his predecessor listing the British operation in 2008, when asked about the foreign markets with the best margins.
Alstead also told the committee the company had an agreement with the Dutch authorities that allowed it pay a "very low tax rate" on its operation there.
Starbucks UK has an agreement to remit 6 percent of its turnover to the Dutch unit - its regional headquarters - in respect to the use of the Starbucks brand.
Alstead also told the committee that Starbucks's Swiss coffee trading unit charged group companies a 20 percent mark-up on coffee beans.
The company does not usually publish how much it spends on raw or green coffee beans but said in 2009 that it bought 367 million pounds for an average $1.47 per pound, suggesting a total coffee bill of $539 million and that the Swiss unit, which employs 30 people, enjoyed income of almost $110 million that year.
The company declined to comment on the Reuters calculation. Alstead denied the world's largest coffee chain channeled profits through tax havens and said it followed the law in every country where it operated.
NO ANSWERS
Members of the committee repeatedly criticised Andrew Cecil, Brussels-based Director of Public Policy for internet retailer Amazon, for failing to answer questions about the group's operations.
Cecil declined several times to tell the committee the level of Amazon's sales in the UK.
"We have not disclosed those figures ever publicly," he said.
Amazon's annual reports do disclose this figure. The most recent regulatory filing gave UK revenues as 11-15 percent of total sales in 2011, an amount equal to $5.3 to $7.2 billion.
Amazon did not respond to emails or calls asking for explanations about the discrepancy.
"It's just not acceptable .. It's outrageous," the committee's chairman, Margaret Hodge MP, said of Cecil's inability to answer questions about Amazon's UK sales and corporate structure.
Amazon's main UK unit paid less than 1 million pounds in income tax last year.
Amazon avoids UK taxes by reporting European sales through a Luxembourg-based unit. This structure allowed it to pay a tax rate of 11 percent on foreign profits last year - less than half the average corporate income tax rate in its major markets.
Matt Brittin, Google Vice President for Sales and Operations, Northern and Central Europe, acknowledged the company did cut its tax bill by channeling profits from European sales through Bermuda but said this was perfectly legal.
Google's filings show it had $4 billion of sales in the UK last year, but despite having a group-wide profit margin of 33 percent, its main UK unit reported a loss in 2011 and 2010.
It had a tax charge of just 3.4 million pounds in 2011.
The search engine provider books European sales via an Irish unit, an arrangement that allowed it to pay taxes at a rate of 3.2 percent on non-U.S. profits last year.
Google is under audit by the French tax authority regarding its structure, but the company denied a newspaper report last month that it had received a back tax claim for 1 billion euros.
