Certainly, the sums lost to the Treasury are mind-boggling. Google, based for tax purposes in Dublin, earned £11 billion from Britain between 2006 and 2011, but paid only £10 million in tax. Starbucks, based in Holland, in 2011 earned £395 million in the UK, but paid only £6 million in tax. Amazon, based in Luxembourg, had UK sales of £3.35 billion in 2011 but paid only £1.8 million in tax. Equally clever at avoiding UK tax are our largely foreign-owned water companies, such as Thames, which in 2011 made a £550 million profit and paid no tax at all. Ever longer grows the list of leading companies avoiding UK tax in this way, from Apple and Vodafone to BHS and Pizza Express – so that estimates of what the Treasury is losing are as much as £120 billion a year, equal to a fifth of the Government’s entire income.
Astonishingly, however, entirely missing from all the outrage is the simple explanation of how and why this racket has come into being. It all stems from the “four freedoms” laid down in the founding treaty of the European Union, especially the freedoms of “capital” and “establishment”, which entitle firms to move all their income to the country where they want their tax base to be, to give them the smallest tax liability. This has completely destroyed the sovereign right of national governments to levy tax in a country where income is earned. Google, Amazon, Apple and the rest can thus quite legally channel all their earnings wherever tax rates are lowest.
There’s any number of errors in there. Starbucks is not based in Holland for example, the reason it doesn’t pay UK taxes is because it doesn’t make a profit here. And pretty much none of these cases hinge particularly on EU law. Vodafone did, because EU law meant that the UK’s CFC rules did not apply to EU subsidiaries. But the others? Amazon? Google? The rules that allow them to do what they do pre-date the EU by some decades. They’re using the League of Nations’ rules on permanent establishments. The EU really doesn’t have all that much to do with it.
It is however true that all of the various ways by which this could be changed would run up against EU rules. That’s the bit that the Murphmeister doesn’t tell us all. But it’s not EU rules that cover most of what is going on at all. It’s the concept of permanent establishment which is pre-WWII in its definition.