Technology Companies Accused of Tax Avoidance

Apple is the latest business to have joined the ranks of technology companies accused of avoiding UK tax, with Amazon and Google having already been singled out.

The technology firm is reported to have paid just over £10 million in UK corporation tax on its £6 billion earnings in the last financial year. Documents have revealed that Apple Retail UK Ltd, one of Apple's three main UK subsidiaries, paid corporation tax of £3.79 million on sales in excess of £500 million in the year to 25th September 2010, whilst another of its subsidiaries, Apple (UK) Ltd paid tax of £6.1 million on sales of just under £69 million.

Experts say however that Apple's UK sales are far greater as many are recorded elsewhere and estimate that British revenue makes up for around 10% of its £63 billion worldwide income for the year.

Apple has not commented on its UK tax arrangements.

The company's accounts for 2007 – 2009 are currently under the scrutiny of the U.S Internal Revenue Service (IRS) after an audit of its federal tax returns resulted in certain adjustments being proposed, some of which are subject to appeal.

Amazon, Britain's largest online retailer, is under investigation by UK tax authorities for potential tax avoidance. This follows similar enquiries being carried out in other countries, including the U.S., China, France, Germany, Japan and Luxembourg.

Following an investigation by Bookseller Magazine, Amazon generated sales of approximately £7.6 billion in the UK but according to the latest accounts paid no corporation tax in either 2010 or 2011.  

Amazon explains that it is able to avoid paying UK corporation tax because Amazon.co.uk is owned by Amazon EU Sarl, which is based in Luxembourg. The UK operation is simply a delivery conduit only, with all payments from the UK being transferred to Luxembourg.

The online retailer switched its headquarters to Luxembourg in 2006, a country renowned for its relaxed tax regime.

Accounts for 2010 for Amazon EU Sarl show that although the Luxembourg office employed 134 people it generated a turnover of £6.5 billion, compared with the UK operation that employed 2,265 people but a reported turnover of just £147 million.

Meanwhile, Chancellor George Osborne was left in a state of shock at discovering that some of the UK's wealthiest individuals are paying “virtually” no income tax.

Mr Osborne told The Telegraph that he had seen tax returns, although not details of the individuals involved, that revealed that the top twenty tax avoiders had used three main loopholes to legitimately reduce their income tax liabilities by a total of £145 million in a year. The loopholes include writing off business losses, offsetting the cost of business mortgages or buy-to-let borrowings and tax relief on charitable donations.

A HMRC study concluded that multi-millionaires are using aggressive tax avoidance schemes to reduce their income tax bills to an average of 10%.

Whilst the Chancellor did not believe it was right that these people with £multi-millions per annum were paying no income tax with regularity, he did acknowledge that their tax affairs were above board.

The ethical debate about tax avoidance will continue to rage on during the UK's economic struggle but provided individuals and businesses organise their tax affairs in the most tax efficient manner that is within the confines of legislation then who can sit in moral judgement of these people? After all, do not most people want to pay the least amount of tax that is legally possible?