Ben Zuccolini - s1101113 - Dissertation

TAX EVASION OR AVOIDANCE: THE MEDIAS ROLE
Ben Anthony Zuccolini
Presented as part of the requirement for an award within the Undergraduate

Modular Scheme at the University of Gloucestershire
April 2014
DECLARATION
This Dissertation is a product of my own work and does not infringe the
ethical principles set out in the Universitys Handbook for Research Ethics.
I agree that this Dissertation may be available for reference via any media
and developed in the future at the discretion of the University.
Word Count 10,682 (excluding references and appendices)
ABSTRACT
Tax Evasion or Avoidance: The Medias Role

April 2014
Taxation affects everybody in the UK and is paid on everything that is

bought, from the coffees we drink, to the electronic goods we buy. However,
is it right that companies may not being paying their fair share?
The aim of this study is to evaluate the medias role in portraying
companies as evading taxation. It is felt that the media may give a bias view
towards the way companies deal with their tax planning.
The literature suggests that the tax system in the UK may not be fair
and may be of a complex composition that allows companies to have
effective tax planning that can lead to aggressive tax avoidance.
Nine themes were identified in the literature and explored through
extensive literature research in conjunction with the evaluation and analysis
of media articles. Key findings included the impact that tax havens have on a
competitive global economy. One other theme is the reputational factor that
companies may not have taken into consideration when planning their taxes.
The study has concluded that the secondary data collected from
companys accounts and evaluated against media articles has been effective
in establishing that companies are indeed tax avoiding, rather than tax
evading.
ACKNOWLEDGEMENTS
I would firstly like to thank my Dissertation tutors, Tracy Jones and Michelle
Cook for their continuous support and guidance throughout this Dissertation.
I would also like to thank everybody at the University of Gloucestershire for
giving me the opportunity to gain the knowledge and experience that will lead
me through life.
Finally, I would like to thank my family and friends, in particular my parents
for supporting me throughout my university career. Without their constant
belief and encouragement I would not be where I am today.
CONTENTS
Title....................................................................................................................i
Declaration........................................................................................................ii
Abstract............................................................................................................iii
Acknowledgements..........................................................................................iv
Contents...........................................................................................................1
List of Figures...................................................................................................4
Chapter 1 - Introduction....................................................................................5
1.0 Introduction.............................................................................................5
1.1 Aim & Objectives.....................................................................................6
1.2 Rationale for study..................................................................................6
1.3 Dissertation structure..............................................................................8
Chapter 2 - Literature Review..........................................................................9
2.1 Is The Tax System Fair?.......................................................................10
2.2 Medias Coverage.................................................................................11
2.3 Tax Havens............................................................................................12
2.4 Tax Evasion...........................................................................................13
2.5 Tax Avoidance.......................................................................................14
2.6 Transfer Pricing.....................................................................................15
2.9 GAAR (General Anti-Abuse Rule).........................................................16
2.10 The Tax Gap........................................................................................18
2.11 Reputation...........................................................................................19
2.12 Conclusion..........................................................................................20
Chapter 3 - Methodology and Methods..........................................................21
3.0 Introduction...........................................................................................21
3.1 Methodology..........................................................................................21
3.1.1 Philosophy......................................................................................21
3.2 Data Collection Methods.......................................................................25
3.3 Reliability...............................................................................................26
3.4 Validity...................................................................................................27
3.5 Research Ethics....................................................................................27
3.6 Qualitative Data.....................................................................................28
3.7 Other Considerations............................................................................28
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3.8 Limitations of the Secondary Data........................................................29

3.9 Conclusion............................................................................................29
Chapter 4 - Data & data Analysis...................................................................31
4.0 Introduction...........................................................................................31
4.1 Tax Avoidance.......................................................................................31
4.2 Boycotts.................................................................................................34
4.3 Tax Evasion...........................................................................................35
4.4 Tax Havens............................................................................................36
4.5 Tax Gap.................................................................................................37
4.6 Case Study............................................................................................38
4.6.1 Google Inc.......................................................................................39
4.6.2 Amazon.com Inc.............................................................................41
4.6.3 Starbucks Corporation....................................................................43
4.7 Conclusion............................................................................................45
Chapter 5 Conclusion..................................................................................48
5.0 Introduction........................................................................................48
5.1 Review of the Objectives...................................................................48
5.2 Limitations..........................................................................................49
5.3 Areas for further study.......................................................................50
References.....................................................................................................51
Appendices.....................................................................................................64
Appendix 1......................................................................................................64
Appendix 2......................................................................................................67
Appendix 3......................................................................................................70
Appendix 4......................................................................................................72
Appendix 5......................................................................................................75
Appendix 6......................................................................................................77
Appendix 7......................................................................................................80
Appendix 8......................................................................................................82
Appendix 9......................................................................................................85
Appendix 10....................................................................................................88
Appendix 11....................................................................................................90
Appendix 12....................................................................................................93
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Appendix 13....................................................................................................97
Appendix 14..................................................................................................104
Appendix 15..................................................................................................106
Appendix 16..................................................................................................112
Appendix 17..................................................................................................118
Appendix 18..................................................................................................120
Appendix 19..................................................................................................123
Appendix 20..................................................................................................125
Appendix 21..................................................................................................132
Appendix 22..................................................................................................133
Appendix 23..................................................................................................134
Appendix 24..................................................................................................135
Appendix 25..................................................................................................136
LIST OF FIGURES
Figure
Page
Figure 1 - Tax Gap in the UK..........................................................................18

Figure 2 - Types of Research.........................................................................27
Figure 3 - Types of Secondary Data...............................................................30
Figure 4 - Investments in Small International Financial Centres...................41
Figure 5 - Amazons Sales, Profit before Tax and Total Tax Paid..................46
Figure 6 - Amazons Sales, Profit before Tax and Total Tax Paid..................48
Chapter 1 - Introduction
1.0 Introduction
Taxation affects everyone in the UK, not only individuals, but
companies too. There is a fine line between tax avoidance and tax evasion.
Evasion as defined by the OECD (2014) as an illegal arrangement where tax
liability is hidden or ignored. Compared to avoidance (OECD, 2014) that is a
legal action where a taxpayer arranges their tax liability in a way to reduce it,
with much of the public not knowing the difference. With the recent scandals
surrounding big global companies, the media has latched onto the fact that
many companies are paying very little corporation tax in some of the
countries they are trading in or selling goods and services to. When it comes
to the publics opinions the media plays an important role, as the public read,
listen and see what they believe is happening in these organisations through
these media reports. But are such reports sensationalising the situation to the
public, or truly reflecting the reality for these organisations?
There are many reasons that it was felt that this research project should be
undertaken. Predominately because it may be felt that the coverage given to
the recent tax avoidance schemes by the media may have been distorted
and given a subjective view. Therefore it is felt that the headlines and content
of the articles need to be reviewed and evaluated, before comparing against
the situation identified through company financial data.
1.1 Aim & Objectives

The aim of this dissertation is:
To evaluate the medias role in portraying companies as evading
taxation.
The aim will be met through a series of objectives:
1
Critically evaluate media representations of companys tax evasion;
Analyse academic literature related to tax evading and tax avoiding;

and
Analyse case study company accounts to determine if there is

evidence for tax evading or tax avoiding.
The aim and objectives lead to three specific research questions:

1
How has the media represented companys tax evasion and tax
avoidance?
To what extent does the literature differentiate between tax evading

and tax avoiding?
Do companys accounts provide evidence for tax evasion or tax

avoidance?
1.2 Rationale for study

It is not by chance that tax has been a widely debated subject for
many years. Taxation has caused many uprisings in history and the debates
in the modern world have evolved into a complicated intertwining set of rules
that allow organisations to avoid paying the correct amounts of tax, this is
however by all means, legal. Many lobbyists will say that this act is immoral
and should be made illegal, and that organisations that do tax avoid should
be made to pay the correct amount of tax by the law.
Tax avoidance and evasion has existed for numerous years and
governments and the ruling bodies are consistently trying to make their
economies and tax systems competitive as well as making the rules clear
and watertight. However, this is not always possible and leaves contradicting
loopholes that can be exposed by organisations who then pay little tax. In a
guide to UK taxation (UK Trade & Investment, 2013) the government want to
make the UK the best place for international businesses to locate in the
world. They go on to say that they have made tax policy simpler, and more
transparent.
Tax evasion is illegal and involves breaking the law to reduce tax paid
(Combs et al., 2013). However, tax avoidance involves smart tax planning
with the taxpayer arranging their affairs to minimize the tax they legally have
to pay (Combs et al., 2013).
When companies were asked to come before the public accounts committee
there was a lot of focus on ethics and morality; were the companies acting
morally in the UK and were they doing anything illegal? (Barford & Holt,
2013). The BBC reported a headline that included tax shaming, showing
there is more to tax avoidance than just numbers; implying it is a moral
obligation. It may be seen that the companies have indeed done nothing
wrong on the surface, however, this article will look closely at what has
happened, and why.
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1.3 Dissertation structure

Following this introductory chapter the dissertation will be organized
as follows:
Chapter 2 will discuss the literature that has been written in the area, and
look at the different themes that have arisen from the literature. One theme
that occurs in the literature is fairness; is the tax system fair? Another is tax
havens and their use within tax avoidance. These themes will be covered
and looked at with regards to various literatures.
Chapter 3 will focus on the methodology and the research methods of the
dissertation, and it will discuss what methods have been chosen. The main
method of data collection is archival research and gathering information from
different media sources to ascertain what the media are actually reporting.
This leads on chapter 4 data and data analysis. It was decided that this
chapter would be combined to cover both the data and the analysis because
of the nature of the data. The data is secondary research, being the analysis
of media articles. They will be compared and analysed. There will also be
case study research, where specific company accounts will be evaluated to
ascertain whether tax avoidance or tax evasion has occurred.
Chapter 5 will summarise all the findings and conclude the limitations of the
research and key areas that should be studied in the future.
Chapter 2 - Literature Review

2.0 Introduction
The main defence against the tax avoiding companies is the Public
Accounts Committee (PAC). The committee is there to examine the accounts
of organisations to ensure the correct amount is being paid to meet public
expenditure (Public Accounts Committee, 2013).
Combs, et al (2013) show that HM Revenue and Customs (HMRC) reveal tax
avoidance to be acceptable and unacceptable, which leads to complicated
tax avoidance schemes to be deemed unacceptable and not a reflection on
the economic substance of the taxpayers activities. The organisations that
are employing tax avoidance schemes are wholly legal, but may be seen by
some to be complicated; the question is how can the HMRC distinguish
between complicated and uncomplicated tax avoidance schemes?
With regards to many articles about the tax avoidance and evasion situation
in the UK, the writings primarily focus on three global companies; Google,
Starbucks and Amazon. They were all summoned before the House of
Commons Public Accounts Committee in 2012, and then in 2013 with their
accountants. Whilst some declared the companies had been humiliated by
this; MPs branded Google as devious, unethical and evil (Herbert, 2013).
The global players are nothing but defiant when saying that what tax they pay
is legal and it is down to the HMRC and politicians setting the rules and tax
system that have been designed. (Review, 2012)
There is a great deal of literature on taxation, not only in evasion and
avoidance but on every aspect of it. Therefore, the literature has been
9
narrowed down mainly to the endeabours of the past 3 years, in the respect
of Google, Starbucks and Amazon. In spite of this, there are also some other
companies that may come into the literature for various different reasons.
In considering whether there is a gap in the research for tax avoidance and
tax evasion, the research has looked at what has already been collected and
the current situations that surround the morality of tax avoidance.
There are several recurring themes that come up in the literature for example
tax havens, reputation, transparency, transfer pricing, and Fairness. Each of
these themes will be looked at independently and the relationship between
them, as they are not mutually exclusive.
Murphy (2013), a Chartered Accountant and economist believes that the
public were appalled to find out how little organizations were paying in
corporation tax, if any at all. Murphy (2013) believes that the Public Accounts
Committee were right in bringing the companies before them to explain their
actions and to unearth the huge tax avoidance that was going on.
2.1 Is The Tax System Fair?
Fairness is a fundamental importance to the UK tax system, therefore
if the companies that are avoiding taxes think the system is unfair then they
will do everything in their power and everything that is legal to pay as little tax
as possible to try and beat the system.
Accountancy Age (2008) says that the UK system is viewed by many as less
fair and less transparent than those in other countries and districts according to an international study from ACCA. This report was surveyed in
several countries, with the UK coming out as less fair and somewhat
10
complex (Accountancy Age, 2008). This suggests that the UK tax system
may need reforming to allow for greater fairness and transparency.
According to ACCA (2008) there are 3 key elements to a fair tax system:
simplicity; transparency; and to not be a major burden to the taxpayer.
The more complex a tax system is, the greater opportunity for tax avoidance
and tax evasion. A tax system is transparent when it is designed to be easily
understood (ACCA, 2008). It also relates to how much tax is collected and
how it is understood. The burden of tax refers to some groups of taxpayers
paying an excessive amount of tax. The amount that it costs to implement
and ultimately oversee the tax structure is also a burden of tax, if it costs too
much to run then it will become a burden to the government and ultimately to
the taxpayer.
Lymer and Oats (2012) believe that when a transaction is made, the tax
implications of that transaction should be understood before it is undertaken.
Everybody that carries out a transaction should know exactly what tax they
should be paying. For example, if someone is selling an item then they must
know what tax they are going to be liable for when selling that product, and
the buyer must also know what tax they are liable for (Lymer & Oats, 2012).
2.2 Medias Coverage
All media portals have reported on tax avoidance issues of the past
couple of years and may have had consumers confused as to whether or not
what these a companies are to have done is legal or not. Murphy (2013)
believes that the Conservative party were able to sell the idea of the UK
exhausting all their financial resources; they were able to sell the idea to the
11
media that it was the previous governments fault. The financial crash of 2008
has been an influence into both the medias coverage and the publics thirst
for information about avoidance. Murphy (2013) considers that the tax
avoidance schemes did not gain large amounts of media coverage until 2011,
which are some years after the financial collapse.
2.3 Tax Havens
According to the BBC (2011) there is no generally agreed definition of
a tax haven, however, a tax haven definition by the Oxford Dictionary
(2014:1) is a country or independent area where taxes are levied at a low
rate. Being that the tax is so low in other countries compared to that of the
UK, companies will seek to lower their tax liability and move their tax risk
activities to the lower tax rate and avoid paying the higher tax imposed by the
UK government. PwC (2013) believe that the countries are just battling for
investment from multinational companies and use their tax systems as key
weapons.
Shaxson (2012) the author of Treasure Islands, a book that explores the
nature of tax havens, believes that the UK is already a major tax haven
before reducing its corporation tax rate to below 21 per cent. Shaxson (2012)
believes that the UK is playing a dangerous game with its corporation tax and
is in a race to the bottom with other countries. This may be seen as the
current government allowing multinationals to dictate tax policies and its
enforcement of tax collection be undermined. A study undertaken by Oxfam
(2000:1) believes that tax havens represent an important obstacle to poverty
reduction. The role tax havens play in global economics is huge, they may
be seen to be depriving developing economies of revenues that would have
12
been collected and used for public good, rather than being avoided and put
into tax havens (Oxfam, 2000).
2.4 Tax Evasion
HM Revenue and Customs (2012) say that tax evasion is when a tax
payer, be that an individual or organization, deliberately attempts not to pay
the tax due. Tax evasion is categorically wrong, there is no tax planning
involved in evasion, tax payers are just simply not paying the correct tax they
should be. Unlike tax avoidance, evading tax is not finding loopholes in the
legislation or paying legally minimal tax. Tax evasion is illegal. It is a means
of concealing income from authorities as a way of circumventing tax
obligations says Ben-Ami (2013).
Adams (1993) says that people have always evaded taxes ever since
governments began to collect them. McGee et al (2008) believe that the most
recent reasons for tax evasion were the inability to pay, the high tax rates,
high government corruption and not getting much in return for their taxes.
Nevertheless, it can be argued that the UK does provide many public
services with the tax payers money, including the NHS, education, police,
and armed forces etc.
Taken from McGee et al (2008:9):
Surveys of groups in Argentina (McGee & Rossi, 2006), Guatemala
(McGee & Lingle, 2005), Poland (McGee & Bernal, 2006), Romania
(McGee, 2005) and the United Kingdom (McGee & Sevic, 2008) found
that there is widespread support for the position that tax evasion can
13
be justified on ethical grounds in certain circumstances. In some cases

the results varied by gender and in other cases they did not.
Their findings were that the countries surveyed all agreed that in most cases
tax evasion was immoral and unethical, except for the points mentioned
above.
Figure 1 - Tax Gap in the UK
(H
MRC, 2012: 4)
2.5 Tax Avoidance
Ben-Ami (2013) believes that it is widely acknowledged that
companies obey the law and are not acting illegally; however, both
individuals and companies are treated as moral lepers due to the fact that
they are acting immorally. Attitudes towards tax avoidance have changed
drastically over recent years with many people not having a great deal of
knowledge about the subject. Conversely, the public now see that tax
avoidance is something that rich individuals and large companies can afford
to do by paying accountants to find loopholes in the legislation and legally
avoid paying the correct amount of tax.
14
This knowledge that the public have gained through the media can somewhat
be assigned to the recent peaceful protests by Occupy Wall Street (BBC,
2011). They staged sit-ins in banks and shops to try to get tax avoidance at
the forefront of the media and to empower the public and shed some light on
the tax avoidance issue (BBC, 2011).
However, the treasury feels that the PACs stance on the companies that it
has had before them have put off big businesses from relocating to the UK
(Mason, 2014), just when the Chancellor of the Exchequer, George Osborne,
is trying to strengthen the UKs global economic position and attract more
investment and relocation for international businesses (UK Trade &
Investment, 2013).
2.6 Transfer Pricing
Alexandra (2013) believes that companies have been forced to review
their effectiveness in the global financial situation and become more
competitive, which in turn leads to companies looking for ways to decrease
their expenses, which includes their tax bills. One way is transfer pricing,
which PwC (2014), one of the leading UK practices for transfer pricing, state
that it is the pricing of transactions between related parties. The UK has
adopted the arms length principle. This transfer pricing rule suggests that
transactions between connected parties should be taxed on the profit that
would have arisen if the same transaction were made between different
parties (HMRC, 2014). According to Ho (2008), international transfer pricing
involves a multidisciplinary research area involving aspects of accounting,
marketing, behavioural sciences, business policy, international business,
economics, finance, legal sciences, and taxation. In contrast, Sikka &
15
Willmott (2010) believe that it involves social responsibility and the states
right to tax. Ernst & Young (2006:5) state that transfer pricing continues to
be, and will remain, the most important international tax issue facing MNEs.
Sikka & Willmott (2010) further this by saying that the statement is
acceptable because transfer pricing allows corporations to minimize their tax
bills, by having favourable tax locations able to hold exported capital. The
Organisation for Economic Co-operation and Development (OECD, 2012)
had labelled transfer pricing as one of its most significant tax issues. Ernick
(2013) does believe that multinationals have harmed governments in a report
on the OECDs meetings about transfer pricing. Ernick (2013) considers that
although the companies may be harming governments, tax payers and
business by minimising their tax liabilities, they are not doing anything illegal.
In the digital economy Ernick (2013) discusses the challenges faced with
digital companies, as they can add value (OECD, 2013) unlike other
traditional companies. Digital companies can reduce their tax burdens by
shifting their income away from jurisdictions where income producing
activities are conducted (OECD, 2013:8).
2.9 GAAR (General Anti-Abuse Rule)
The general anti-abuse rule (GAAR) is a government approach to
manage the risk of tax avoidance. The GAAR is intended to target artificial
and abusive tax avoidance (Bhogal and Fryer, 2012). There are many
countries around the world that now implement the GAAR, from its inception
in 1988 in Canada, the UK GAAR came into effect on 17 July 2013 and will
use case law to establish if abusive tax arrangements are in effect.
However, the GAAR should not allow discretionary power to HMRC and the
16
courts to impose a tax liability when none was anticipated by Parliament

(International Tax Review, 2012).
There is unanimous agreement that the GAAR needs further consideration
and testing before a full scale introduction can be considered (International
Tax Review, 2012). The GAAR would require adequate safeguards to protect
and allow legitimate activity and tax planning.
The International Tax Review (2012) looks at the proposals by HMRC with
regards to the GAAR. The GAAR would apply if three requirements are met:
1
There must be a tax advantage gained by activities

(International Tax Review, 2012);
Obtaining this tax advantage must be the main purpose or one

of the main purposes of the activities (International Tax Review,
2012);
The activities undertaken must be abusive (International Tax

Review, 2012).
Unfortunately, for many cases it is completely down to HMRC to prove all

three requirements, which can take years and could give companies a head
start when employing an abusive tax structure. The International Tax Review
(2012) also talks about the attractiveness of the UK tax system were a broad
GAAR introduced. This could also damage the UK economy in a similar way
to the PAC frightening away potential business. According to Gilleard (2011)
a report given to the UK government says that a broad spectrum GAAR
would undermine certainty and make the UK a much less attractive place for
17
multinationals to want to do business. This would have a detrimental effect

on the UKs economic recovery from the financial crisis. The broad spectrum
GAAR would undermine the ability of businesses to carry out sensible and
responsible tax planning. However, Gilleard (2011) believes that a moderate
rule that allows reasonable tax planning, but instead targets abusive and
forceful tax arrangements would be beneficial. In a report written by Gilleard
(2013) it is believed that multinationals have reacted well to the guidance
provided on the GAAR and that it will not affect their international tax
arrangements, which have been under scrutiny.
2.10 The Tax Gap
According the HMRC (HMRC, 2013a) the tax gap is the difference
between the actual amount of tax collected, compared to the amount that
HMRC believe should be collected. However, according to (Combs et al,
2013) it is necessarily a hypothetical figure.
Shaheen (2014) believes that the responsibility for the tax gap lies with both
the corporations who find inventive ways to pay little tax, and the
governments who in effect let them get away with it and fail to devise the
laws to stop them. HMRC are believed to be failing at their basic task of
collecting tax and they are not fit for purpose according to the Public
Accounts Committee (Shaheen, 2014). However, in the same report
(Shaheen, 2014) the HMRC hit back by arguing that they can only collect tax
which is due under law, they cannot just make up figures to collect.
The tax gap can be separated into three segments: non-filing, underreporting
and underpayment (IRS, 2012). Non-filing occurs when taxpayers do not file
18
their returns on time when required to do so; Underreporting takes place

when the taxpayer either overstates their deductions or liabilities, or
understates their income; Underpayment arises when the taxpayer files their
returns, however they fail to pay the correct amount due (IRS, 2005)
HMRC (2013b:47) believe the estimated total net tax gap for Corporation
Tax is 4.7 billion in 2011-12 (also 4.7 billion in 2010-11), equivalent to 13
per cent of the overall tax gap. Therefore, there is a significant amount of tax
that is not being collected, or not seen to be collected by HMRC. The tax
gap from Corporation Tax is estimated to be 10 per cent of the estimated
Corporation Tax liabilities in both 2010-11 and 2011-12 (HMRC, 2013b:47).
2.11 Reputation
Tax avoidance and evasion have seemed to come to the forefront of
the media since the recession and have made the public think twice about
where they buy their products, or which internet browser they use, some
have also decided to boycott the brands that they feel are not paying their fair
share of tax. Austin & Wilson (2013) discuss the reputational effect that tax
avoidance has on companies, and those companies that are involved in
negative publicity by being accused of not paying their fair share of tax. Tax
avoidance has a clear benefit say Austin & Wilson (2013), increased profits
lead to increased taxes, and therefore lower cash flows, and lower after taxearnings; but tax avoidance can increase that cash flow and give higher
after-tax earnings. However, the costs of tax avoidance are not so well
documented, and represented in the media. By using tax avoiding schemes
companies give their consumers a reason to not purchase from them and go
with a competitor. A survey conducted by Graham, Hanlon, Shevlin and
19
Schroff (2012) supported this theory as 69 per cent of executives surveyed

believed that the potential harm to the firms reputation was a good reason
not to indulge in tax planning activities. Companies must weigh up the
benefits of tax avoidance against the costs of tax avoidance (Austin &
Wilson, 2013).
2.12 Conclusion
The literature that has been discussed has provided a focus on the outcomes
of the research, and given a greater understanding of the surrounding areas.
Tax avoidance involves many other actions rather than just tax planning. The
use of tax havens and transfer pricing are both major parts in tax avoidance
schemes used by companies. The uses of tax havens are seen as countries
battling for investment rather than adding to the global tax avoiding crisis.
The GAAR has been discussed and is a major step towards battling the
complex tax avoidance schemes, however, the reputational disadvantages
that companies may face when using tax avoidance will also be a key factor
for companies to consider. Therefore, only time will tell if the introduction of
the GAAR in the UK will benefit the treasury in collecting taxes and tackling
tax avoiding companies. The outcome of the literature reviewed has given
strong arguments for both the benefits and drawbacks of tax avoiding. On the
other hand, the financial benefits in the short term may not outweigh the
reputational cost in the long term.
20
Chapter 3 - Methodology and Methods

3.0 Introduction
It is important that the methodology and methods adopted for this
research project allow the stated aim and objectives to be fully explored. The
overall aim of the research is to evaluate the medias role in portraying
companies as evading taxation.
This will be done through a number of secondary data objectives. The
literature will be reviewed and a conclusion will be drawn upon as to what
extent and by how much it differentiates between tax evasion and tax
avoidance.
Secondly, the medias headlines about the tax scandals will be analysed and
critically reviewed. The headlines will be compared against the findings in the
first objective by seeing if the media are actually being truthful about the tax
issues.
Lastly, a company case study will be examined. By drawing on the first
objectives results, the accounts will be scrutinised and evidence will be
provided as to whether tax evasion or tax avoidance has taken place. These
research areas will give a good indication as to whether the companies are
indeed tax avoiding and to what extent, or if they are actually tax evading?
3.1 Methodology
3.1.1 Philosophy
When developing a philosophical perspective it requires that the
researcher make numerous core assumptions concerning the nature of
society and the nature of science (Burrell & Morgan, 1979). Therefore, when
21
choosing a research area, it is thought that because taxation affects

everybody in the world and is of a common human interest. Corporate tax
can also be seen as a common interest as it affects the Treasury, and
ultimately the budget. Therefore, due to this assumption it is thought that the
research area is of sufficient interest and relevance to the world today. It
could be seen as the tax payer paying the tax that the big corporations are
avoiding.
The paradigm approach within this study will be interpretive. Interpretive
researchers start out with the assumption that access to reality is only
through social construction such as language, consciousness and shared
meaning (Eriksson & Kovalainen, 2008). From an interpretive perspective,
the outcomes of external influences are from human actions (Smith, 2003).
The positivism approach would not take into consideration human actions,
and their influence on certain situations. This therefore would not allow the
research to be undertaken using the positivism concept as taxation is very
much interpretive (Smith, 2003).
The literature surrounding tax avoidance and evasion will look at what ways
companies can use tax avoiding schemes. This will allow for the analysis of
the media articles to take place. When evaluating the articles it is imperative
to interpret the information using active participation, rather than detached
observation (Smith, 2003). A critical perspective would also be of an
interpretive nature; however, the critical research adopts a particular point of
view regarding the research question, whereas interpretive research purports
to take a neutral stance (Baker & Bettner, 1997). Additionally, the mainstream
22
accounting journals use predominately positivist methodological perspectives

and have a major emphasis on quantitative methods (Baker & Bettner, 1997).
This approach is inept of addressing accountings complex social
ramifications.
There are three perspectives that can be used to classify the kind of research
that is performed (Kumar, 1999): the application of the research study, the
objective in undertaking the research and the type of information sought.
Figure 2 - Types of Research
Source: Kumar (2012:12)

An effective method consists of a system of models, procedures and
techniques used to find the results of a research problem (Panneerselvam,
2004:2). The aim of this approach will be to assess what each method is,
how it will be effective for the research and how it operates.
23
Media analysis can be used to identify messages, examine how those

messages are framed, and see how existing coverage of an issue could be
improved (Gould, 2004:1). The media analysis will be focused on identifying
the messages from the media, and how it differentiates between tax
avoidance and tax evading. The analysis entails taking a slice of media
coverage from a set period, being from highly regarded newspapers,
magazines and other media outlets (Gould, 2004).
When critically evaluating the media representation of companys tax evasion
it is essential to analyse the medias headlines and articles relation to tax
evasion and tax avoidance. This research will involve looking at companys
financial accounts, and seeing whether what the media is actually saying
about them is true. One such company that will be investigated will be
Google; their accounts will be scrutinised to ascertain whether or not they are
tax avoiding or tax evading, and to judge what the media has stated is
correct.
The overall research undertaken will primarily be qualitative data, however,
some aspects of the research will involve statistics and diagrams to
emphasise the main point of the dissertation and compare government
figures against actual figures. When using qualitative methods it is felt that
this has an advantage over quantitative research because it gives room for
flexibility and allows for a greater depth of focus on the study (Silverman,
2005; Priest, 2010).
24
3.2 Data Collection Methods

As stated earlier, the data collection method has been selected as
being best suited to meeting the research aim and objectives. This is
because the media articles are publically available and therefore are
secondary sources; as is the case for the companies accounts. The
companies accounts are released each year, and this research takes
accounts from 2003 2011.
Secondary research is pivotal in any research project as is gives an overview
of what has been researched before in the same subject area which will not
only help to choose a research topic and place the research in context, but it
is also crucial for the decision on the research design (Greenfield 1996; Bell
2001).
The secondary data research began with a search of the literature that
covered tax evasion and avoidance and gave guidance and explanations of
the difference from experts in the taxation field. These findings gave a
starting point to the literature review, and were outlined. To be able to get a
clearer in-depth objective view of the area, the articles and theories were
grouped and discussed under reoccurring themes within the literature. These
themes were then discussed and criticised. To find more sources, the
bibliographies of the literature that were already used were analysed and
selected to find further results. When enough information was to believe to
have been collected the remainder of the literature review was written, which
allowed greater focus towards the final research area.
25
Figure 3 - Types of Secondary Data
Sourc
e: Saunders et al. (2006:307)
3.3 Reliability
Each research method should be examined critically on its reliability,
validity and ethical stance (Finn et al. 2000). When testing for reliability of a
method, the results obtained from the research needs to be consistent for it
to satisfy the reliability test. Bell (2010) says that on all occasions under the
same constant conditions the test or procedure should produce similar
results.
When reviewing the literature in terms of reliability there is a concern that the
results produced can be bias. Sources relating to government publications
26
may be of a bias view due to the fact they will want to be seen as taking
action against tax avoiders. However, accounting firms that give tax planning
advice may publish reports that give a view that tax avoidance and planning
will benefit the company.
The media sector is privately owned with the exception of the BBC.
Therefore, the news that they report on will be less focused on an unbiased
opinion and rather focused on revenue and profit. This will reduce the
legitimacy of the media being one of the main scrutinising bodies in the UK.
3.4 Validity
The validity of a research instrument indicates if it measures what it is
supposed to measure and if the collected information really reflects the
phenomenon that it was intended for (Veal, 1997). Sapsford and Jupp
(1996:1) expand on this and take validity to mean the design of research to
provide credible conclusions. The phenomenon in question is whether the
media headlines are portraying the tax affairs of the global companies
correctly. However, Bell (2010:120) believes that if an item is unreliable, then
it must also lack validity, but a reliable item is not necessarily also valid. The
tests could produce the same results in all events, but may not be measuring
what it is supposed to be (Bell, 2010).
3.5 Research Ethics
During the course of this study, consideration for research ethics were
given due attention. The Universitys Research Ethics handbook was
examined to see if any formal research ethical issues applied to this
research. Walliman (2006:148) says ethics are the rules of conduct in
research. As all of the data collection is from widely available sources, which
27
are made specifically available for the public, there is no sense of breaching
any of the Universitys Research Ethics guidelines. Due to the use of
publically available secondary resources there were no research ethics
issues related to this research.
3.6 Qualitative Data
Using qualitative data allows for greater in-depth discussion about the
areas researched, rather than just reviewing the figures, the qualitative
research allows for expressions and feelings to be reviewed. Seale et al
(2007) discuss potential dangers of qualitative research:
1
The provision of a set of arid principles which may bear
little relation to the actual research project;

The concealment of the variety of analytical models and
approaches currently in use (Seale et al, 2007).
This shows that the research objectives chosen must always be referred to
and not just mentioned once and forgotten about.
Anderson (2010) believes that the use of qualitative research may not be as
well understood as that of quantitative data, because it involves interpreting
the data, which can be time consuming.
3.7 Other Considerations
It was also contemplated and considered whether primary research
may have taken place, in the form of a questionnaire to the general public;
this would have gained public perception on tax evasion and avoidance and
seen whether or not the media had influenced the public in their view of
recent tax scandals. However, this approach would not be directly
answering the research questions. A questionnaire given to the public would
28
only give public perception about whether or not media articles have changed
peoples views on tax avoidance and evasion. It would not evaluate the
medias representation of companies tax evading or avoiding.
3.8 Limitations of the Secondary Data
Saunders et al (2012:609) believe that virtually all research has its
limitations. It is felt that because this research project is very recent there
may not be enough literature on the area. However, as soon as the global
corporations were thrown into media headlines, the appropriate accounting
journals were very quick to shed light onto the matter and this allowed the
research to be effective and relevant. A limitation that arose before the
research was undertaken was the cost of accessing the financial data and
reports needed to undertake the project effectively. This was identified in
Saunders et al (2012) where access may be difficult or costly. However, the
company data was freely available as they are all public companies, and the
reports were accessible through the Universitys online databases.
3.9 Conclusion
After reviewing the approach that is to be undertaken in this
dissertation, it has given a comprehensive structure for reviewing and
analysing the media articles. The use of media articles and company
accounts will give an analysis and a unbiased comparison into whether or not
the media are reporting companies tax planning correctly, and whether or not
the companies are tax avoiding. The approach that best reflects the research
objectives is the interpretive approach. This is due to it being able to address
the complex social consequences that accounting can cause. Using media
articles as the secondary data collection allows for them to be evaluated and
29
dissected and compared to the company accounts. This entails using the
interpretive approach in justifying what has been written in the media articles,
if they are correct or not.
30
Chapter 4 - Data & data Analysis

4.0 Introduction
When collecting data from media articles, it is felt that every type
should be reviewed. For example, The Sun a tabloid newspaper, and the
Financial Times a broadsheet.
Many of the articles use the Public Accounts Committee as a starting point
and the main chairwoman of the committee Margaret Hodge also.
4.1 Tax Avoidance
One main media source is the BBC, with it being the UKs number one
news website, and generating one billion page views per month (BBC, 2008).
The BBC is the government owned Broadcasting Corporation and provides
impartial public news. One headline reported last year that serious tax
evasion reports fall to five year low (BBC, 2013:1). The report in question
comes when the government has vowed to cut corporate tax evasion. The
Financial Times (Houlder, 2013:1) also had a similar headline UK tax
avoidance schemes fall to all-time low, however, in the article they state that
elaborate tax schemes were being eliminated, but they do not touch upon
any other tax avoidance. The article had a statement from the exchequer
secretary, David Guake (Houlder, 2013:3), who said that big companies
were often being wrongly criticised for legitimate behaviour such as claiming
capital allowances; he further goes onto say that this does not help the
government and hinders them in their attempt to incentivise investment from
companies.
31
The main companies that this dissertation focuses on appear frequently in

media headlines. The BBC (2013:1) used a headline Google, Amazon,
Starbucks: The rise of tax shaming. This headline pre-empts the reader into
having a preconception before they have read the article. This particular
article uses phrases such as tax expense in some sentences; however, they
use corporation tax in others without any explanation of either. The reader
could be mistaken for thinking they are the same, or completely different.
They have also stated that Everything these companies are doing is legal.
Its avoidance and not evasion (Barford & Holt, 2013:6). This makes it
extremely clear that the writer does know the difference between evasion and
avoidance.
One Daily Mail headline was Amazon, Google, and the sordid reality of tax
avoidance (Sunderland, 2012:1). Within the headline the writer claims that
what is happening is just the same as the American robber barons of the
Edwardian era (Sunderland, 2012). This can be seen as overreacting by the
newspaper, however, to a certain degree this is true. The newspaper is
saying that just like the American robbers, the tax avoiding corporations in
question are stealing from the government and not paying the tax that is
expected from them. The article goes onto say that Google made sales of
2.1 billion in the UK, but only paid 5 million of tax, a rate of less than a
quarter of one per cent. At the end of the article the writer talks about the
public, saying that the customers of these companies are fearful and
struggling to make ends meet (Sunderland, 2012:10). From another article
by the Daily Mail, Fresh questions to be raised over Google's tax avoidance
as tech giant announces profits of $3.4 billion (Campbell, 2014:1), the writer
32
talks about the hard times for the British public when they have to fund public
services. The article is once again trying to lure the reader and give them a
worrying pre conception, making the tax avoiding companys enemies before
any facts are being told. Google retaliated by saying that most of their
corporate tax bill is paid where their business originated, the US (Campbell,
2014). They went onto say that they are a significant contributor to the UK
economy, by creating over 2,000 jobs and investing more that 300 million in
property throughout 2013 (Campbell, 2014). Margaret Hodge is also quoted
in the article, when saying that this is once again a scandal where profits are
being made from economic activity and yet Google refuses to pay its fair
share of tax (Campbell, 2014:8).
'Big four' accountants 'use knowledge of Treasury to help rich avoid tax'
(Syal, et al, 2013:1) this is a headline from the Guardian about a KPMG
employee helping set the guidelines for the patent box with the government
and then going back to the KPMG to help write a brochure about how
companies can minimize their tax bills through the use of the information that
had been procured. Margaret Hodge (Syal, et al, 2013) says that the
relationship the accounting firms have with government is unhealthily cosy.
She wants the treasury to stop accepting staff from the firms to help draw up
new tax laws. Many take the same view as the Public Accounts Committee
and believe that the same accountants that serve the big corporations should
not be allowed to serve the treasury. Hodge said in an interview that the
accounting firms had become "The poacher, turned gamekeeper for a time,
returns to poaching" (Dunt, 2013:5).
33
Amazons is said to have made a pre-tax profit of 74million in 2011, but paid
just 1.8million to the taxman a rate of just 2.4 per cent (Campbell, 2013). It
also tried to claim that Luxembourg was its main business segment, where it
employs 500 people compared to the UK where it employs 15,000 people
(Campbell, 2013). These figures come from Corporate tax avoidance 2013:
following the Starbucks scandal, who has been paying their fair dues?
(Campbell, 2013:1) this headline, like many others, touches on the fairness
aspect of tax.
4.2 Boycotts
In The Economist (2013) the reputation of Starbucks is touched upon
and the reason for this is transparency. The public obtained more information
about the activities of Starbucks and many have therefore decided to stop
buying from the coffee chain all together.
The Google brand has not got off lightly either, with the Telegraphs headline
Google brand damaged by tax row (Williams, 2013:1), the giant technology
company was the worst performing media brand in the UK, even worse than
the BBC who were hit by the Jimmy Savile sexual abuse scandal. The
company are said to have been forced to deny misleading parliament
(Williams, 2013); the company were not forced to do anything in the Public
Account Committee hearing. They were stating why they were paying that
amount of tax, and the reason was that the British staff were only negotiating
the deals, but the actual transactions of money happened in Ireland where
the corporate tax rate is at 12.5 per cent. According to the branding company
Clear, Google has fallen by 38 per cent from a year ago with attitudes
towards them including respect and future use falling (Williams, 2013). It is
34
not only in the UK that their brand recognition has fallen, in Australia its brand
desirability fell by 20 per cent.
A survey commissioned by Christian Aid (2013) found that 34 per cent of the
British people are currently boycotting products and services of some
companies that do not pay their fair share of tax in the UK. Additionally, 10
per cent are considering a boycott of the brands (Shaheen, 2013).
The good work of Starbucks regarding its fair trade stance and ethical
behaviour may be seen to have been undone overnight due to one tax
scandal that has had a damning effect. Their YouGov BrandIndex reputation
score fell from 4.6 to -3.9 (Shaheen, 2013), showing just how much the tax
stories have hurt them, when they spent years building their reputation and
rapport with customers.
A report in the trade publication the bookseller with the title Young bookbuyers put off Amazon (Campbell, 2013:1) emphasises the point that tax
avoidance, while giving a positive economic benefit for the company, can
also have a negative effect. A study undertaken by the Booksellers
Association (Campbell, 2013) discovered that 70.8 per cent of 16-24 yearolds said that due to Amazons recent tax affairs scandal they would be less
likely to shop for books online.
4.3 Tax Evasion

A Guardian headline Rich countries failing to address money
laundering and tax evasion, says OECD (Tran, 2013:1) believes that the
richest countries in the world are not delivering on their pledges to crack
down on money laundering and tax evasion. This not only affects the rich
countries through tax not being paid, but also the poorer countries that the
35
money is coming from, therefore aiding in those poorer countries having less
resources to aid their development. The Organisation for Economic Cooperation and development (OECD) has 34 member countries and all are
found wanting in areas for money laundering, tax evasion and abusive
transfer pricing.
4.4 Tax Havens

The Economist front page in February 2013 was The missing $20
trillion (The Economist, 2013:1). The opening line of the article was
Civilisation works only if those people who enjoy its benefits are also
prepared to pay their share of the costs (The Economist, 2013: 11). The
magazine believes that if people do not pay their dues then the whole world
will collapse. However, civilisation has been fine so far, before the media
started to report on the tax avoidance schemes of large multinational
companies. Before the days that the public started to sit up and take notice of
the elaborate tax schemes the world was in an economic boom and people
were none the wiser, except for a select few (The Economist, 2013). They go
on to say that the efforts of the Prime Minister David Cameron and the US
President Barack Obama are futile when the tax systems that they have
created are complex and need reforming (The Economist, 2013).
36
Figure 4 - Investments in Small International Financial Centres
Source: Lane & Milesi-Ferretti, (2010:2) as cited in the Economist (2013)
4.5 Tax Gap

The Financial Times delves into the tax gap with the headline HMRC
failing to pursue big companies over tax, say MPs (Houlder, 2013:1).
Margaret Hodge believes that HM Revenue and Customs pursues the
smaller businesses and do not have the back bone and nerve to pursue the
larger, multinational corporations (Quinn, 2013). The article goes onto say
how the committee attacked HMRC because of the tax collected in real terms
is less than in 2011-12, even with HMRC to be supposedly cracking down on
37
tax avoidance. However, the revenue hit back by saying it has secured
1billion (bn) through prosecuting eight large businesses for tax avoidance.
Yet, earlier in the article, the revenue predicted that it would be able to collect
3.12bn of unpaid tax from UK holders of Swiss bank accounts, but has only
managed 440m in the 2013-14 year.
4.6 Case Study

Before discussing the outcomes of the calculations on the financial
statements there were a number of limitations when looking at them. The first
limitation was that because Google, Starbucks and Amazon are all US
registered companies, they have to legally register their accounts in the US
and therefore they are consolidated accounts; rather than registering
financial accounts in every region and country that they operate in. This
made the findings rather difficult and meant only an estimation could be
made on the amount of taxation that should be paid. The tax rules are
different in every part of the world and again because the accounts have
been taken from the US there may be different tax advantages. One other
limitation is that due to all the various tax advantages and benefits on hand to
the companies, and the reliefs that may have been given by government. It is
beyond this research to account for those limitations, however, all reasonable
efforts have been made to correctly calculate the amount of tax that may be
due. Although in some aspects of the calculations the figures were
segmented into different regions, the UK may not be separated and therefore
an estimation will be calculated.
38
4.6.1 Google Inc.

Googles company accounts are made publicly available in the United
States.
Referring to appendix 19 the accounts gave the figures for the sales;
however these figures were segmented in US, UK and international groups.
This allowed the UK sales to be divided by the total sales in order to gain a
percentage of the UK sales in relation to the total sales; the same was also
done for the US sales and the international sales to give an overall view.
The profit before taxation was not separated by geographic location and
therefore the UK percentages had to be calculated by multiplying the total
profit before tax by the UK percentage of sales. This is therefore only an
estimation of the profit before taxation as the information is not available for
just the UK sector of the business.
The main rates of corporation tax were obtained for the US and the UK and
used to see how much tax the company should have been paying in those
countries. The actual amount of tax paid was calculated using the amount
that Google are actually paying according to their financial accounts
multiplied by the percentage of UK sales obtained. This is again an
estimation as stated before, because the UK segment for profit before
taxation is an estimate.
The Independent ran a headline that stated We pay 6m tax on 2.6bn UK
profits (Wright, 2013:1). Further on in the article they stated that despite
paying only 6m of taxes on 2.6bn of revenue generated in the UK in 2011
(Wright, 2013:2). They state two different types of uses for the 2.6bn, one
for profit and one for revenue. This alone would confuse the reader into
39
thinking that the 6m paid in tax would be on the revenue; however,

corporation tax is calculated on the profit that the company makes. In this
instance it is impossible to know which figure revenue is and which profit is.
These figures were from the 2011 financial statements published by Google,
however, when looking at the statements it is not possible to see where those
figures have come from. Referring to appendix 21, the UK accounts were
10.7 per cent of the total revenue for Google Inc. and the profit that was
generated in 2011 was $12,326bn, therefore 10.7 per cent of the profit is
$1.3bn not 2.6bn that was stated by the Independent. The effective tax
rates have been acquired from the Google Inc. annual financial statements.
The effective tax rate stated by the company in 2011 was 21 per cent,
compared to the tax rate of 40 per cent that the US has installed. That is 19
per cent lower than what should be expected (Appendix 21). However, it is
only 5 per cent (Appendix 21) lower than the UK corporation tax.
In 2004 Google Inc. stated in their annual accounts why their effective tax
rate would be decreasing year on year. This is because proportionally more
of their earnings will be recognised by their Irish subsidiary, which has a
lower tax rate (Google Inc. 2004). The Irish independent (Webb, 2014) ran an
article about the Irish subsidiary; Google was never meant to be this big in
Ireland but plans change (Webb, 2014:1). The article talks about the
Dutch Sandwich where companies reduce their tax bills by moving money
from one country to the Netherlands then onto another low tax jurisdiction like
Bermuda (Webb, 2014). They believe that (Webb, 2014) Google Ireland
moved 8.6bn to Bermuda via Holland in 2012. In Google Irelands financial
accounts for 2009 the Guardian (2011) state that the geographical segmental
40
analysis will not be provided due to the fact that the disclosure of the
information would be prejudicial to the interests of the company. This
immediately gives rise to suspicion that the company wants to hide
something, be that tax or something else that will give them a bad reputation.
However, Google Ireland boss John Herlihy was adamant that the company
was not doing anything wrong; he said that the companys overall effective
tax rate was over 20 per cent, compared to that of Irelands corporate tax rate
of 12.5 per cent (Webb, 2014). The figures calculated for the tax that Google
should pay to the UK are entirely based on the situation that the profits are
apportioned in the same percentage as the revenue generated (Appendix
19).
4.6.2 Amazon.com Inc.
The accounts for Amazon.com, Inc. do not breakdown the different
sales, profit and tax for each country that it operates in. Appendix 22 shows
how the company splits its sales into North America and International
segments. The information for the UK segment will be analysed from the
view that the international sales are equivalent to the UK sales. The effective
tax rates for each year were acquired from the annual reports published by
the company. However, when the PAC met with Amazon, the company gave
information about its European activity in 2011 (Public Accounts Committee,
2012); although it is unaudited it does give an indicator as to the sales, profit
and tax of the company. The Company made net sales in the UK of 3.35bn
which is 25 per cent of the international sales, and 11 per cent of the total
sales. The profit on that revenue was 74m. Taking this information and
applying a corporate tax rate of 26 per cent, which was the tax rate in 2011, it
41
can be calculated that the company may have paid the UK 19.24m in
corporation tax. This is compared to the reported amounts they had actually
paid; the Independent reported that the company had only paid 1.8m in
2011 (Hickman, 2012). The report by the PAC (House of Commons
Committee of Public Accounts, 2012) also specifies that Amazon EU SarL
had a turnover of 207m which also had a tax expense of 1.8m; the low tax
payments are consistent with the rest of its European undertakings, where
they had paid 8.2m in tax, when they had a turnover of 9.1bn. The BBC
(Pollock, 2012) ask the question why Luxembourg? One major part is
because of the treaties that Luxembourg has with other countries, it allows
companies to pay tax in one country and then reclaim it if tax is also required
in another country. The company employed 4,200 people in the UK at the
end of 2012, compared with only 380 in Luxembourg (The Week, 2013). This
leaves the question, where are their operations being operated from, with
only 380 employees in Luxembourg.
42
Figure 5 - Amazons Sales, Profit before Tax and Total Tax Paid
Amazon's Sales, Profit before Tax, Total Tax Paid

50,000,000
40,000,000
30,000,000
$000
20,000,000
10,000,000
2003 2004 2005 2006 2007 2008 2009 2010 2011
-10,000,000
Year
Total Sales
Total Profit before Tax
Total Tax Paid
4.6.3 Starbucks Corporation

Starbucks have made a loss for 14 years out of the 15 years it has
been operating in the UK according to sources (Norman, 2013). The PAC
believes that this is inconsistent with what the company is telling its
shareholders (House of Commons Committee of Public Accounts, 2012); the
committee believe that the company is telling its shareholders that the UK
business has been successful and was making 15 per cent profits. Starbucks
also seem to using the Dutch Sandwich to move money around the world
according to the PAC; however, the economist believes that Starbucks is not
using the Dutch Sandwich (The Economist, 2012). The coffee company
does admit that is has negotiated a secret low tax rate with the Dutch tax
43
authorities (House of Commons Committee of Public Accounts, 2012);

additionally the company has inter-company loans between the US company
and the UK branch, where the interest rate is considerably higher than an
average business loan.
Refering Appendix 24 the revenue for Starbucks has been seperated into two
segments, the US and foreign countries. The tax has been calculated in the
same way as Google and Amazon. In 2008 the company had sales of
$8,227m the highest it had ever had. However, the overall profit had
decreased to the lowest since 2003. Therefore, the tax that Starbucks paid
had also decreased; the company paid $144m in total income tax. This
amount is lower than in 2003 when the companys total profits were less than
in 2008. In the companys annual report, they state that their US income and
foreign withholding taxes have not been provided on approximately $409m of
cummulative undistributed earnings (Starbucks Corporation, 2008:69). The
company intend to reinvest those earnings, rather than pay dividends to
shareholders, as they know that if they were to pay dividend then they must
pay additional income taxes to the US (Starbucks Corporation, 2008).
A report by Reuters (Bergin, 2012) explains just how Starbucks are avoiding
UK taxes. The company buys its coffee beans from a company in
Switzerland that it owns; the price paid for the beans are much higher than
could be sourced elsewhere and therefore the profit is lower than it could be
(Bergin, 2012). This is transfer pricing. The company is paying over market
value for the beans and cutting its profitability, in turn reducing its tax liability.
44
Figure 6 - Amazons Sales, Profit before Tax and Total Tax Paid
Starbucks Comparitive of Total Sales, Profit before

2011
2010
2009
2008
$000
2007
2006
2005
2004
2003
-
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
$000
Total Sales
Total Tax they are Paying
4.7 Conclusion
There are many different reasons why these companies, like so many
others pay little or no corporation tax in particularly countries. The
government can grant companies special tax benefits to enhance the
companys presence and overall economic impact in that specific country.
The deferral of tax, will decrease the tax liability of the company, however,
this will eventually need to be paid.
45
With the headline rate of tax in the UK being considerably lower than that of
the US, it is a wonder why companies do not side with the UK tax system and
put their EU headquarters in the country that offers extensive grants and
benefits for international trade, however, when competing with countries such
as Ireland and Luxembourg it makes business sense to locate in those
countries. Ireland offers a headline rate of tax at 12.5 per cent, compared to
that of 23 per cent in the UK for 2013. Ireland is only a short journey across
the Irish Sea which allows connections to the UK. The country is also
recovering from a bail out, therefore it would want to attract a lot more
business than in previous years, and this may be done in the same way as
the UK, by offering benefits and grants. Luxembourg is another country in the
tax avoidance limelight and it offers an extensive network of double taxation
treaties, however, the UK boasts the largest network of treaties, covering
around 120 countries (HMRC, 2013b).
When analysing the companys sales, it needs to be evaluated whether or
not the majority of the sales are still in the US as was in previous years,
because if the majority of the companys sales are not the US then it has to
be asked whether the companies should still pay the majority of their tax in
the US. With regards to Google, the majority of their sales are in the US,
compared to the UK, however, not compared to the rest of the world. The US
accounted for 46.3 per cent of total sales, compared to 53.7 per cent for the
rest of the world including the UK. This becomes an issue of whether they
should be paying more of their taxes in the rest of the world rather than the
US. On the other hand Amazons sales are not predominately generated
outside of the US; however, their annual report does not specify what sales
46
are generated in the US as it is under North America. They generated 55.5

per cent of their sales in the North America, which is an increase compared
to the previous year.
Although it appears than none of the companies highlighted have broken any
laws, there is still the huge question of the immoral impact that tax avoidance
has. It is clear from media headlines and surveys undertaken previously that
the public still feels that tax avoidance is immoral and companies should be
made to pay more tax, or more tax in specific countries than they are
currently paying.
47
Chapter 5 Conclusion
5.0 Introduction
Chapter five will summarise what the study has achieved in relation to
the aim and objectives. Revisiting the research objectives will identify
whether they have been addressed, before returning to the results of the data
collected. The dissertation will conclude by looking at the limitations of the
study, and offering suggestions of areas for further study.
5.1 Review of the Objectives
The objectives stated earlier will be evaluated to determine the extent
to which they have been achieved. The research objectives are as follows:
1.
Critically evaluate medias representation of companys tax
2.
evasion;
Analyse academic literature related to tax evading and tax
3.
avoiding; and
Analyse case study company accounts to determine if there is
evidence for tax evading or tax avoiding.
The medias representation of companys tax evading was evaluated and as

a result the media articles found were not reporting on tax evasion. When
researching media articles, there were no cases of media representing the
companies in question as evading taxation.
The literature relating to tax evading and tax avoiding was vast and as a
conclusion the reoccurring themes were analysed. These reoccurring themes
distinguished important aspects and related to one another and to the media
articles.
48
The annual reports of all three companies were analysed to determine if they
were tax evading or tax avoiding. All three of the companies were in some
way seen to be tax avoiding. Google used its Irish subsidiary to pay less tax
in the UK, while Amazon used Luxembourg as its European headquarters,
therefore allowing it to shift its profits there and pay less tax. Starbucks used
different techniques to reduce their tax bill. They used the Dutch sandwich,
inter-company loans, and transfer pricing. The Reuters report (Bergin, 2012)
explains each tax avoiding process, but as all articles have stated none are
illegal activities.
The overall aim of this dissertation was to evaluate the medias role in
portraying companies as evading taxation. The research undertaken and
analysed has reached the conclusion that the companies analysed are not
evading taxation, they are to a limited extent openly disclosing how their
corporate tax liabilities have reduced over the years. The medias
representation of this has proved to be fairly accurate. All the tax avoiding
techniques are not evading taxation, but are simply reducing it, which is not
illegal. The reputational factors that may accompany such tax avoiding has
given a new insight into the drawbacks of avoiding tax. The survey
undertaken by Graham, Hanlon, Shevlin and Schroff (2012) supports this by
showing the way executives look at tax avoidance and its reputational costs.
5.2 Limitations
When analysing the company accounts of all three companies it is
unfortunate that they do not have public information available specifically
about their UK dealings. Information portrayed by the media is not verified
and therefore can be unreliable. Therefore, the findings of how much tax
49
should be paid by the companies are an estimation based on the data

available. Furthermore, the taxation in the UK is very complex and there are
a considerable number of benefits that companies can receive on their tax
liability. There may be some negotiation between the government and the
companies, as seen between the Dutch government and Starbucks. The
companies trade in many countries across the world and it is beyond this
research project to looking in detail at the position beyond the UK.
A further limitation is that this research has been based on only three
organisations. These were selected as being particularly prominent in the
press prior to this research project, so provide a snapshot in time on this
issue.
5.3 Areas for further study
It is felt that the role that tax havens play in international economic
decisions deserves more attention. There is literature to support (Oxfam,
2000) the idea that tax havens cause a major problem and are one of the
foremost issue in the tax gap.
The UKs tax system is complex and can be confusing, and therefore it may
need reforming in order to close any loopholes that are being taken
advantage of by large multinational companies. There is enough literature
surrounding the tax system that further study would be possible and to
establish whether the tax system does indeed need reforming as the
Economist (2013) believes.
50
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Appendices
Appendix 1.
We pay 6m tax on 2.6bn UK profits, but that's OK because we help startups: Google boss Eric Schmidt under fire over comments on corporate tax
Executive chairman insists the company is key to UK economic growth as its

adverts 'empower literally billions of pounds of start-ups'
OLIVER WRIGHT
TUESDAY 23 APRIL 2013

Senior MPs called on David Cameron to consider stripping the boss of
Google from his role as a government adviser tonight after he suggested that
his companys contribution to the British economy was more important than
paying its fair share of tax.
Politicians from all three parties rounded on Googles executive chairman,
Eric Schmidt, after he defended its use of loopholes to minimise its UK tax
bill. He insisted that Google would comply only with the letter of the law
64
despite paying only 6m of taxes on 2.6bn of revenue generated in the UK

in 2011. Google uses anomalies in international law to move profits into lowtax jurisdictions even if they have been generated by business carried out in
Britain. Chancellor George Osborne has made tackling the practice a priority
for Britains chairmanship of the G8.
But in an interview with the BBC, Mr Schmidt defended his companys
practice, suggesting that its contribution to the UK economy was more
important than the tax it paid to the Exchequer. We are investing heavily in
Britain, he said. We power literally billions of pounds of start-ups through
advertising networks and so forth, and were a key part of the electronic
commerce expansion of Britain, which is driving a lot of economic growth for
the country. So from our perspective, I think, you have to look at it in a
totality.
The people we employ in Britain are certainly paying British taxes, and more
importantly, theyre British citizens and theyre driving a lot of GDP. I think the
most important thing to say about our taxes is that we fully comply with the
law, and well, obviously, should the law change well comply with that as
well.
His comments were condemned by MPs, who pointed out that much of the
investment in broadband internet infrastructure that had allowed Google to
grow had been paid for by taxpayers.
Margaret Hodge, the chairman of the powerful Commons Public Accounts
Committee (PAC), which carried out an investigation into the tax practices of
multinational companies, said the Government should consider whether Mr
Schmidt was an appropriate person to remain on its Business Advisory
Group if Google maintained its tax position. I think we should be careful who
we talk to, and I think if people want to have the voice of Government, they
have a responsibility to pay their fair share, she said.
A government source also questioned Mr Schmidts position, claiming Google
was not really investing very much in Britain and that the company had a
disproportionate influence on Mr Cameron. Its a bit like The Wizard of Oz,
the source said. From the outside, they appear terribly important and
powerful but, when you look closely at what they are actually investing in
Britain, it is pretty insubstantial.
Fiona Mactaggart, another member of the PAC, said that while she would
need to look closely at Mr Schmidts exact position as a government adviser,
65
the companys privileged position did raise questions. Given he has not
made the moral leap to recognise that Google should pay its fair share of
taxes in the UK, it makes you think maybe he is not well-equipped to do that
role, she said.
Charlie Elphicke, the Conservative MP for Dover, said he was surprised by
Mr Schmidts comments. The key point of corporation tax is that businesses
that make profits in the UK pay a fair share of that in tax, he said. Mr
Schmidt says Britain has been a good market for his company. If that is the
case, why has it paid such little tax?
Ms Hodge added that the position of MPs remained consistent. These global
companies should pay a fair rate of tax related to the economic turnover in
this country and the profits they derive from that turnover, she said. Google
is clearly not doing that.
She objected to the idea that multinationals already make a sufficient
contribution, saying: I really get fed up when these global corporations talk
about how they are contributing in other ways. So, of course, if they employ
people, those people pay their PAYE, they pay their national insurance, and
just because they pay one tax doesnt mean that they should get away with
not paying another.
A spokesperson for the Treasury said that, while the Government was
committed to creating the most competitive corporate tax system in the
G20, this commitment went hand in hand with the need for strong
international standards to make sure global companies pay the taxes they
owe.
66
Appendix 2
Google brand damaged by tax row
Googles reputation in Britain has taken a heavy blow as a result of criticism
over its avoidance of taxes, a major survey of consumer attitudes suggests.
Google executive chairman Eric Schmidt has called for debate on tax
laws Photo: AP
By Christopher Williams, Technology, Media and Telecoms Editor
6:00AM BST 28 Jun 2013
54 Comments
The search engine has tumbled over the last year in rankings of brands
compiled from a survey of 12,000 consumers by Clear, M&C Saatchis
branding agency. Google was named the fifth-most-desirable brand by
Britons in the same survey in 2012, but new figures due to be published next
week reveal it has fallen out of the top 20.
Google was the worst performing media brand in Britain. It fared even worse
than the BBC, which was rocked by the Jimmy Savile sexual abuse scandal
67
and the disasters that followed, but lost only 10pc of its brand desirability.
The broadcaster was hit particularly hard in the measures of respect that
contribute to the index.
Googles fall follows a year in which the company has been repeatedly
battered by negative headlines around its tax affairs. It was twice called to
defend its almost complete avoidance of UK corporation tax to MPs on the
Public Accounts Committee, and was forced to deny misleading Parliament
over whether British staff actually sell advertising.
The MPs claim that, contrary to their corporate motto, Google executives do
evil by channelling billions of pounds in British advertising revenues to an
offshore tax haven via Ireland made front page headlines and led television
news bulletins.
Since its grilling in Parliament, Google has sought to shift the debate away
from criticism of multinationals and towards reform of the tax system.
If the British system changes the tax laws then we will comply, said
executive chairman Eric Schmidt last month. That is a political decision for
the democracy that is the UK.
According to Clear, the series of stories have nevertheless had a major
impact on Googles reputation among consumers. Its Brand Desire Index,
which captures nine measures of attitudes to brands including respect and
future use, fell by 38pc on a year ago.
The suggestion that damage to Googles brand was caused by its tax affairs
was corroborated by data from 3,700 Australian consumers. Tax avoidance
has similarly risen up the political agenda there, with Google among the top
targets for criticism. In Australia its brand desirability fell 20pc.
The tax controversy had an impact on other multinational brands. Starbucks,
which was also hauled in front of MPs to explain why it had paid no
corporation tax for four years, saw its brand reputation flat-line while its rival
prospered. British-owned Costa enjoyed a 70pc surge in its Brand Desire
Index, while Starbucks edged up just 3pc.
Clear said Starbucks sheepish reaction to criticism of its tax avoidance may
have saved it from brand damage on the scale suffered by Google. Following
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its Public Accounts Committee roasting in November, the coffee shop

volunteered to pay 20m to the Exchequer and this week said it had paid the
first 5m in corporation tax despite making a loss in Britain.
Amazon also avoided a hit to its brand despite a disastrous appearance at
the Public Accounts Committee when it was unable to explain its tax
avoidance structure. Its brand desirability climbed 1pc on last year and
remained in the UK top 10.
The survey suggested the long-term squeeze on spending following the
financial crisis is now having an impact on perception of consumer brands.
The budget supermarket Lidl gained 80pc, for instance, and was the best
performer in its sector.
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Appendix 3
Google's UK division paid 12m in corporation tax in 2012

Google paid only 11.6m in corporation tax in the UK in 2012, despite
revenues of 506m, it can be disclosed.
Google has faced fierce criticism for designating its UK office as primarily a
marketing operation, apparently supporting its European base in Ireland. But
a Reuters investigation alleged that Google's employees in the UK were
actually responsible for sales and not their colleagues in Ireland. Photo:
Bloomberg News
By Matt Warman, Technology Editor

10:15PM BST 29 Sep 2013
85 Comments
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The British arm of the global internet giant declared a profit of 36.8m, up
from a loss of 24.1m on a turnover in 2011 of 395m.
Google's accounts will also show a 24m provision for taxes on shares
awarded to employees from 2005 to 2011, in accordance with a new ruling by
HM Revenue and Customs. Globally, it declared a profit of $10bn (6.1bn) for
2012.
But the disclosure on Google's corporation tax position in the UK, contained
in filings submitted to Companies House, threatens once again to raise
scrutiny over the company's tax practices amid accusations of avoidance
tactics.
Google has faced fierce criticism for designating its UK office as primarily a
marketing operation, apparently supporting its European base in Ireland. But
a Reuters investigation alleged that Google's employees in the UK were
actually responsible for sales and not their colleagues in Ireland.
Google, however, maintains it should pay taxes primarily in the US. Although
the perfectly legal tax arrangements have been approved by HMRC and are
commonplace among international companies, politicians and campaigners
have argued that Google is not being fully transparent about the role of its UK
office.
Eric Schmidt, Google's executive chairman, has repeatedly said that Google
pays the tax it is required to by international law. Sources at the company say
politicians should set tax rates, and should consider Google is located in
Ireland, in part because of its attractive tax regime.
Google points out it has made a 345m property investment in the UK,
including a new campus at the redeveloped King's Cross in London. It also
claims that its overall 2012 total UK tax contribution is 156.1m.
"We can only pay corporation tax according to the law," the source said. The
company has 2,000 employees in the UK and pays a global tax rate
equivalent to 20pc, it claims.
Google, however, has been battered by negative headlines around its tax
affairs, and has
twice been called to defend its avoidance of UK corporation tax to MPs on
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the Public Accounts Committee, and was forced to deny misleading

Parliament over whether British staff actually sell advertising.
Margaret Hodge, chairman of the committee, has claimed Google's approach
to tax meant "it did do evil", contrary to its corporate motto. Mrs Hodge called
earlier in the summer for David Cameron to intervene over Google's tax
affairs, arguing that the company had a moral obligation to contribute more to
society.
She said it was "no excuse" for the Prime Minister to claim tax avoidance
was a global problem.
But Conservative MP Andrea Leadsom argued last night that HMRC was to
blame rather than big businesses for the wider issue. Speaking at a fringe
event at the Conservative Party conference, Ms Leadsom said the problem
was our own incompetence.
Appendix 4
Rich countries failing to address money laundering and tax evasion,

says OECD
Illicit cash flows cost poor countries billions as wealthy nations fail to honour
pledges to halt activity, claims damning new report
Mark Tran
theguardian.com, Wednesday 18 December 2013 10.00 GMT
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The US NGO Global Financial Integrity says illicit financial flows from poor
countries between 2001 and 2010 reached $5.8tn. Photograph: Roslan
Rahman/AFP/Getty
The world's richest countries are failing to deliver on their pledges to crack
down on money laundering and tax evasion, which drains billions of dollars
from poor countries, a report said on Wednesday.
The damning assessment from the Organisation for Economic Co-operation
and Development (OECD), a group of 34 countries, comes despite tough
rhetoric on illicit financial flows from leaders of the G8 group of industrialised
countries, particularly the British prime minister David Cameron.
According to Global Financial Integrity, a US NGO, illicit financial flows from
developing countries between 2001 and 2010 reached $5.8tn, with China
responsible for almost half of the total five times as much as the next
highest source country, Mexico.
At a time of declining official development assistance, donors
and aidrecipients see the loss of revenues to poor countries through illicit
flows as an increasingly urgent problem. The OECD report measures for the
first time its members' responses to the flows money laundering, bribery by
international companies, recovery of stolen assets and tax evasion, including
abusive transfer pricing (pricing goods to minimise tax payments). In all
areas, OECD countries are found wanting.
Anti-money laundering and counter-terrorist financing are governed by 40
recommendations drawn up by the Financial Action Task Force (FATF), an
inter-governmental body established in 1989. The recommendations cover
areas such as beneficial or true ownership of companies, and customer
due diligence and record-keeping (knowing customers and understanding
their risk profiles).
On average, OECD countries' compliance with key recommendations on
money laundering is low, said the report. The lowest areas of compliance
include beneficial ownership and politically exposed people (prominent
individuals who can abuse their position).
"The results are appalling," said an OECD official. "It's striking how poorly G8
countries score on core recommendations, which have to do with due
diligence and beneficial ownership. They are weakest on issues where they
make the grandest statements."
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Cameron and G8 leaders have sought to tackle the beneficial ownership

issue. In October, the UK announced that a planned register setting out the
true owners of companies will be open to the public for scrutiny, not just to
the tax authorities.
A register of beneficial owners was one of the key demands of campaigners
when Britain chaired June's G8 summit of world leaders in Northern Ireland.
This followed a commitment in the summer by Cameron to crack down on UK
accountants, lawyers and business figures who use shell companies often
located in offshore tax havens to hide the identity of ultimate beneficiaries.
Welcome as those moves are, more needs to be done according to the
OECD. The organisation noted that 27 out of 34 member countries demand
insufficient beneficial ownership information for legal persons, while no
country is fully compliant with the beneficial ownership recommendations
made by the FATF.
"The G8 are the laggards on beneficial ownership," said the OECD official.
Even on basic customer due diligence requirements (checking the identity of
customers), OECD countries show a woeful lack of compliance. The report
cited a 2011 review by the UK's Financial Services Authority (now the
Financial Conduct Authority) that found a third of British banks routinely flout
customer due diligence requirements, even when they have enough
information to identify clients as "political exposed persons" (prominent
political people).
On tax evasion, the report said there is a trend to move towards automatic
exchange of information among OECD countries, with both the G8 and G20
groups endorsing the OECD's work to set a new single standard for this form
of exchange. However, developing countries lack the relevant technical
standards and safeguards to transmit, receive and protect confidential
information. Poor countries have also tended to focus on tax avoidance by
international companies rather than by rich individuals.
In Zambia, for example, Norway is supporting the renegotiation of contracts
between the Zambian government and large multinationals in the mining
sector. But developing countries have put less emphasis on national fraud
and corruption.
"There are not that many which are keen to address tax avoidance in their
own countries, as it involves their own elites," said the OECD official.
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As of last year, 221 individuals and 90 companies have been sanctioned for
foreign bribery, yet about half of all OECD countries have yet to see a single
prosecution. The most widely accepted estimate of global bribery puts its
total at about $1tr every year. In the developing world, bribery amounts to
around $20bn a year equivalent to 15%-30% of all ODA. Between 2010
and 2012, OECD countries returned $147m and froze almost $1.4bn in
stolen assets.
The issue of illicit flows is one area where the interests of rich and poor
countries converge, said Erik Solheim, chairman of the OECD development
assistance committee. "OECD members themselves only stand to gain from
strengthening their safeguards against money laundering, tax evasion and
bribery," said Solheim.
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Appendix 5
Amazon, Google, and the sordid reality of tax avoidance
By RUTH SUNDERLAND
PUBLISHED: 01:13, 6 April 2012 | UPDATED: 14:20, 7 April 2012
Giant American internet companies such as Amazon and Google have made
huge inroads into the UK, claiming to be forces for good that give customers
access to music, books and information more easily and cheaply.
The truth is rather less wholesome. Just like the American robber barons of
the Edwardian era Carnegie, Rockefeller and Vanderbilt they have
embarked on a land-grab; not for steel, oil or real estate, but for intellectual
and cultural property.
They are ruthless would-be monopolists and avoidance of tax is part and
parcel of the plunder.
+1
Avoidance: Google and Amazon have minimized their exposure to the UK tax
authorities
Todays revelation that the UK tax authorities are investigating Amazon is bad
enough, but the situation at Google is arguably even more egregious as it
has its hooks deep into the highest echelons of the Government.
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David Camerons former adviser Steve Hilton is married to Rachel

Whetstone, a former head of communications at Google, who was also
godmother to the Prime Ministers late son Ivan.
And only a few days ago, Chancellor George Osborne was hobnobbing with
Google bigwigs at the opening of the Google Campus in east London, a new
centre meant to serve as a hub for fledgling high-tech firms, giving it the glow
of his official approval. For all his talk of a clampdown on morally repugnant
tax avoidance, Mr Osborne is behaving like an impotent bystander as
Amazon and Google trample over the crumbling British high street and raze
our creative industries to the ground.
Amazon faces probes after not paying a penny in company tax in

Britain for two years
As well as minimising its corporation tax in the UK, Amazon also uses tax
dodges to reduce VAT payments to Her Majestys Revenue and Customs,
with VAT on its e-books payable at the Luxembourg rate of just 3 per cent,
rather than the rate here of 20 per cent.
For its part, Google has shielded itself from the British taxman by locating its
international operations in Ireland, where the corporation tax rate is a mere
12.5 per cent, around half that in Britain. Even that rock-bottom Irish rate,
however, is not low enough to satisfy the company and its wealthy founders.
It has deployed complex techniques known to tax experts as a Double Irish
or a Dutch Sandwich to funnel profits to the white sands of Bermuda, via the
Netherlands. The result: Google, which makes much of its money from
advertising, racked up sales of 2.1billion in the UK, but paid a mere
5million of tax, or a rate of less than a quarter of one per cent.
Other achingly trendy American technology companies embraced by the UK

consumer are also adept at keeping their tax payments down.
Apple, whose British stores are mobbed every time it produces a new iPad or
iPhone, has stashed some 40billion in overseas subsidiaries, including the
British Virgin Islands tax haven. It also has significant operations in Ireland,
including a production facility.
Facebook, the social networking site, has also set up shop in Dublin to avail
itself of the lenient tax regime available on the banks of the Liffey.
Both Google and Amazon have wormed their way into the affections of much
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of the British public. They have painstakingly cultivated the image of being
trendier, more glamorous and more innovative than traditional businesses.
Yet the sordid reality of tax avoidance, to swell the corporate coffers at a time
when many of their own customers are fearful and struggling to make ends
meet, is starkly at odds with these carefully constructed facades.
But a spokeswoman from Google said: 'We have an obligation to our
shareholders to set up a tax efficient structure, and our present structure is
compliant with the tax rules in all the countries where we operate.'
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Appendix 6
'Big four' accountants 'use knowledge of Treasury to help rich avoid tax'
Experts offering advice on legislation they helped to create is 'ridiculous
conflict of interest', says select committee chair Margaret Hodge
Rajeev Syal, Simon Bowers and Patrick Wintour
The Guardian, Friday 26 April 2013 09.10 BST
Jump to comments (922)
The so-called "big four" accountancy firms are using knowledge gained from
staff seconded to the Treasury to help wealthy clients avoid paying UK taxes,
a report by the influential Commons public accounts committee says.
Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers have provided
the government with expert accountants to draw up tax laws. But the firms
went on to advise multinationals and individuals on how to exploit loopholes
around legislation they had helped to write, the public accounts committee
(PAC) found.
Margaret Hodge, the PAC's chair, said the actions of the accountancy firms
were tantamount to a scam and represented a "ridiculous conflict of interest"
which must be stopped. "The large accountancy firms are in a powerful
position in the tax world and have an unhealthily cosy relationship with
government," she said, calling for the Treasury to stop accepting their staff to
draw up new tax laws.
The report comes after David Cameron on Thursday set out plans to use
Britain's chairmanship of the G8 to tackle what he described as staggering
worldwide levels of tax evasion and avoidance.
The PAC claims HM Revenue and Customs had to seek outside help
because it was engaged in a "battle it cannot win" in seeking to stem the
losses to the exchequer from tax avoidance.
The accountancy giants employed almost 9,000 staff and earned 2bn a year
from their tax work in the UK, and 25bn globally, the report claims. MPs
found that Revenue and Customs had far fewer resources, particularly in the
area of transfer pricing: complex transactions deployed by multinational
companies in order to shift taxable profits to low tax jurisdictions. "In the area
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of transfer pricing alone, there are four times as many staff working for the
four firms than for HMRC," the report says.
The committee highlights the way the firms seconded staff to the Treasury to
advise on issues in the drafting of legislation. "Through their work in advising
government on changes to legislation they have a detailed knowledge of UK
tax law, and the insight to identify loopholes in new legislation quickly," it said.
One example in the report is that of KPMG, whose staff advised on the
development of "controlled foreign company" and "patent box" rules, and
then issued marketing brochures highlighting the role they had played. The
brochure "Patent box: what's in it for you" had, it said, suggested the
legislation represented a business opportunity to reduce tax and that KPMG
could help clients in the "preparation of defendable expense allocation".
The committee is "very concerned by the way that the four firms appear to
use their insider knowledge of legislation to sell clients advice on how to use
those rules to pay less tax", the report adds.
The report was welcomed by Prem Sikka, professor of accounting at
University of Essex. "They [the big four] are the epicentre of a global tax
avoidance industry and the loss of tax revenues is directly responsible for the
current economic crisis. The Treasury should follow the US authorities and
prosecute and fine the firms. The habitual offenders should be shut down,"
he said.
Officials from HMRC rejected criticisms that tax officers were not making
progress in tackling avoidance. "The facts show that we are not only
aggressively fighting battles against tax avoidance, but we are winning
them," a spokesman said.
KPMG said in a statement: "When requested to by government departments
we do provide individuals on secondment. Their role is to provide tax
technical input and commercial experience so that the authorities can make
informed choices on tax policy. Our secondees do not write legislation or
make policy decisions."
Bill Dodwell, head of tax policy at Deloitte, said: "We do not believe that there
has ever been any conflict of interest but would want to help ensure that
there is no perception of conflict." Kevin Nicholson, head of tax at PwC, said:
"We provide technical insight to government but only when asked and are
never involved in deciding tax policy which is a matter for the government."
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In evidence to the committee, John Dixon, Ernst and Young's head of tax,
said: "I think there are benefits in the work we do with government ... benefits
to the country at large. If you look at the quality of the legislation that we now
have ... it is a lot better than it was 10 years ago.
"Why is that? Because we are actively working with government, at our cost,
to make sure that the legislative footprint we are working with is as clear and
concise as it can possibly be."
An HMRC spokesman said: "HMRC gives careful consideration to the
potential risks, as well as how to mitigate any potential conflicts of interest,
before any such secondments are agreed. On balance, the carefully targeted
use of secondees is beneficial for the development of tax policy and
improving the effectiveness of the tax system."
Cameron, who hopes to use an EU summit in May as a stepping stone to a
wider agreement at the G8, wrote to all EU leaders proposing:
Rapid movement to a global system of information exchange to help tackle
tax evasion including through the use of offshore trusts.
Action plans by G8 countries to produce full transparency, breaking through
walls of corporate secrecy and establishing central public company registries.
Voluntary deals for multinational firms to make clear the tax they pay in
every country they operate in.
Implementation of the EU accounting directive so developing countries can
access information on payments to governments made from the oil, gas and
mining industries.
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Appendix 7
Tax avoidance is beginning to hit multinationals bottom lines

by Salman Shaheen
8:45 am - March 4th 2013
Share on Tumblr
It used to be that tax avoidance saved businesses money. For decades, the
worlds biggest multinational companies have been quietly shifting profits into
tax havens to legally lower their tax bills and few but the most hardened
activists batted an eyelid.
The financial crisis has changed everything. With the public feeling the pinch
of punishing austerity, people have begun to wake up to how the global tax
system operates and they dont like it one bit. Tax avoidance may be legal,
but its morality sits squarely in the dock.
New evidence has emerged suggesting that the reputational damage
companies are taking from being exposed for tax avoidance scandals is
costing them money.
A ComRes survey about public perceptions around tax avoidance,
commissioned by Christian Aid, found that 34% of British people are currently
boycotting the products or services of a company because it does not pay its
fair share of tax in the UK. A further 10% say they are considering a boycott.
What this survey shows is that one in three people are actually prepared to
change their buying habits and boycott some of the firms seen as not paying
their fair share in the UK. This surely must be a wake-up call to all
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businesses, said Joseph Stead, Christian Aids senior economic justice

adviser.
There is a caveat, of course. Google is one of the most prominent companies
to be exposed for tax avoidance in recent months and its unlikely many
people have boycotted a search engine which has embedded itself as a verb
in the dictionary and the public consciousness. No doubt many people
learned of the scandal through Google news.
But for highly brand-orientated public facing companies like Starbucks, there
is a serious problem.
Within a week of being exposed for tax avoidance, Starbucks YouGov
BrandIndex reputation score fell from 4.6 to -3.9 and research by Manchester
Business School predicted the scandal could contribute to a fall in UK sales
of 24% in the next year.
Its a sign of things to come. Starbucks has gone to great pains in recent
years to boost its CSR credentials by trumpeting fair trade products and
environmentally sustainable practices, but all that good work was undone
overnight with one negative tax story.
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Appendix 8
23 January 2014 Last updated at 17:50

Treasury anger over Margaret Hodge 'grandstanding'
COMMENTS (863)
By Chris MasonPolitical correspondent, BBC News
There is anger within the Treasury that what they see as grandstanding
by a senior Labour MP is putting off big businesses from relocating to
the UK.
The work of Margaret Hodge's Public Accounts Committee - which
scrutinises spending - is "having an impact" on foreign investment, sources
claim.
Mrs Hodge, who has chaired the committee since 2010, described the
criticism as "completely fallacious."
She also said officials should "have the guts" to make comments to her face.
The MP grabbed headlines last year when she branded Google's tax record
"evil".
Treasury sources say senior ministers have been warned by businesses that
the prospect of public humiliation in front of MPs and the television cameras
makes them think twice about where to invest.
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Boycott
"Companies looking at Britain are being put off the idea of moving their
headquarters here because they fear the level of public exposure for
behaving perfectly legally.
"There is no doubt it is having an impact. We are trying to show we have one
of the most competitive corporate tax regimes in the world, but the message
is being sent out if you come here you will be exposed to this sort of criticism
from Margaret Hodge and her committee.
"The head of a company looking to move here would see the way other
people have been hauled in front of MPs and subjected to criticism and will
think: 'I'm not doing that.'
Margaret Hodge in quotes
To Matt Brittin, Vice-President Google UK: "You are a company that

says you 'do no evil'. And I think that you do do evil."
To Andrew Cecil, Director of Public Policy at Amazon

Europe: "The idea that you come here and simply don't answer the
questions and pretend ignorance is just not on. It's awful".
To Troy Alstead, Starbucks chief financial officer: "It doesn't ring

true Mr Alstead, that's what frustrates taxpayers in the UK. Are you lying to
your shareholders?"
"The likes of Starbucks and Amazon will always be here, but other
companies looking at Britain are being put off the idea of moving their
headquarters here."
The government believes it faces a tricky balancing act between offering a
competitive tax regime which draws international firms in, while also being
seen to take action against companies which do not pay what they owe.
Last year Margaret Hodge led the questioning of executives from Starbucks,
Google and Amazon over tax avoidance and said at the time that she thought
it was right for customers to boycott the three companies. Clips of the
session were picked up by foreign media and circulated on YouTube.
'Damaging impact'
Reacting to criticism from inside the Treasury about the work of her
committee and the confrontational nature of the public hearings it holds, Mrs
Hodge told me that companies looking to relocate looked at a range of
factors, of which tax was just one.
"The skills of the workforce, the timezone we're in and the quality of the
public services they would rely on are just as important," the Labour MP told
me, "and those public services need to be paid for.
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"To assume you can entice companies purely by a race to the bottom on tax
is mistaken," she added, saying it was "unfair on British firms with British
workers" if multinationals could "get away with paying less tax than they do."
Since the coalition came to power, ministers have emphasised their desire to
ensure that drumming up business for the UK is a priority of foreign policy.
In July 2010, two months after becoming prime minister, David Cameron
said: "I want to refashion British foreign policy, the Foreign Office, to make us
much more focused on the commercial aspects, making sure we are
demonstrating Britain is open for business. I think it is a big opportunity. As
we come out of recession and into recovery we have got to pay our way in
the world and I want to reorientate the Foreign Office to be much more
commercially minded."
But there is growing frustration in government that public grillings of senior
business leaders, often widely publicised abroad, are posing a problem.
In a speech in November, the Treasury Minister David Gauke said: "When
legitimate and legal tax behaviour is wrongly presented to the public as
illegitimate, or illegal; it can have a very damaging impact.
"'What's the problem?' Some people might ask. 'Surely it keeps individuals
and companies on their toes? If they know they'll be under this scrutiny,
surely they're less likely to do anything suspect?' But what we have to
remember is this.
"If companies are worried that their reputations will be unfairly damaged. That
perfectly legal and perfectly legitimate behaviour might be presented to the
public as something different. Then it is quite understandable that this could
put them off moving here, or investing here, or creating jobs here."
Mrs Hodge told the BBC: "I'm perfectly happy to have a public debate about
the issue of who should pay tax, but I'm not prepared to do it on the back of
anonymous Treasury sources."
She added: "Whoever has been saying that in the Treasury ought to have the
guts to come forward."
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Appendix 9
Tax avoidance from big global firms costs every British taxpayer 183 a year
May 19, 2013 00:00

By Dominic Herbert
Analysis of company accounts, regulatory filings and figures from HM
Revenue and Customs reveals the shocking extent of the scandal
Every British taxpayer is being cheated out of 183 a year as global giants
including Google and Amazon avoid paying annual taxes of as uch as
5.5billion.
A Sunday Mirror analysis of company accounts, regulatory filings and figures
from HM Revenue and Customs reveals the shocking extent of the scandal.
A massive 1.4billion of the shortfall, based on an estimated 30 per cent
profit, comes from just eight companies which netted 18.2billion in UK sales,
but only paid 33million in tax.
HMRC reports a huge additional 4.1billion from other corporations.
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The deficit could pay for over 100,000 nurses, police officers and teachers.
The revelations come just days after Google was branded devious, unethical
and evil by MPs who condemned the tactics used to avoid tax.
Latest figures indicate that Google avoided as much as 224million by paying
just 7.3million in corporation tax on 3billion of UK revenue.
But in a heated debate at a Commons Public Accounts Committee meeting,
Google vice-president Matt Brittin said any claim the company had been
trying to disguise the way it operated was not true.
PA
Grilled: Googles Vice President Matt Brittin this week
Accounts for Amazon for 2012 this week disclosed its tax bill amounted to
2.4million and is controversially offset by Government and EU grants of
2.5million.
The company has insisted it pays all applicable taxes in every jurisdiction it
operates in.
Starbucks has paid no corporation tax on sales of 1.2billion.
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Last December the coffee giant volunteered to pay 20million to the Treasury
after a row over revelations it had paid no corporation tax here for three
years.
Meanwhile eBay paid less than 1million in tax on sales of 800million.
Analysis of the corporate records of Apple reveals it may have saved as
much as 550million in corporation tax on sales of 6.7billion.
Various legal methods are used by big businesses to cut their corporation tax
bills.
But Labour will later this week pile the pressure on David Cameron over the
issue before a speech by leader Ed Miliband to Google executives in which
he will accuse some multinationals, who pay as little as 0.1 per cent in tax, of
letting Britain down.
Mr Miliband and Shadow Chancellor Ed Balls want the PM to raise the matter
when he meets Google chief Eric Schmidt tomorrow.
Mr Balls said: People and businesses who pay their fair share have been
shocked by how little tax some companies seem to pay in Britain.
"All too often companies that pay low taxes are doing so because they can
bend the rules to their advantage.
Tax expert Richard Murphy said: By being cheated out of 183 each year
the British people are being taken for a ride.
"We need a big politician to stand up to these companies.
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Appendix 10
'The poacher turned gamekeeper': Hodge blasts open tax avoidance debate
By Ian Dunt Thursday, 25 April 2013 11:02 PM
Margaret Hodge: Spoiling for a fight?

The debate over corporate tax dodging escalated a notch today, when
Margaret Hodge accused big accountancy firms of a fundamental conflict of
interest in their interaction with government.
Speaking ahead of a new public accounts report on tax avoidance, the chair
of the committee said large accountancy firms were sending staff to advise
the Treasury on tax legislation and then returning to them to identify the
loopholes they themselves put in.
"The large accountancy firms are in a powerful position in the tax world and
have an unhealthily cosy relationship with government," she said.
"They send staff to the Treasury to advise on formulating tax legislation.
When those staff return to their firms, they have the very inside knowledge
and insight to be able to identify loopholes in the new legislation and advise
their clients on how to take advantage of them.
"The poacher, turned gamekeeper for a time, returns to poaching."
The explosive comments came as Hodge mapped out the staggering
disparity of manpower between HM Revenue and Customs and tax avoiders.
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In the area of transfer pricing alone there are four times as many staff
working for the big four accountancy firms than for HMRC.
The big four employ nearly 9,000 people and earn 2 billion from their tax
work in the UK. They earn around $25 billion from this work globally.
Hodge demanded the UK take a lead in reforming international tax law to
prevent firms going overseas, setting up a computer and a few members of
staff in a tax haven, and then reaping the benefits.
"The UK must take the lead in demanding urgent reform of international tax
law, so that companies have to pay a fair share of tax where they actually do
business and make profits," she said.
Campaigners want the UK to conduct robust work on simplifying the tax code
but only six people have been assigned to work in the Office of Tax
Simplification.
93
94
Appendix 11
Fresh questions to be raised over Google's tax avoidance as tech giant

announces profits of $3.4 billion
Last quarter of 2013 saw profits up from 17 percent compared to
2012
Google-owned sites, including YouTube generated revenues of

$10.55bn
2013 saw record sales of $55.5bn, largely thanks to online ad
revenue
Google's Motorola Mobility made $384m operating loss
Tech giant's expected tax bill is just a tiny fraction of profit at
11.2m
By PETER CAMPBELL
PUBLISHED: 13:31, 31 January 2014 | UPDATED: 02:00, 1 February 2014
Google yesterday announced record British earnings of 3.6billion last year,

an increase of 600million on 2012.
But the online search giant has yet to disclose how much corporation tax it
will pay.
It will come under enormous pressure over the figure following fierce criticism
over its tax affairs. For 2012, the US multinational paid just 11.6million of tax
on an income of 3billion.
95
Fresh storm: Google announced $3.4bn profit for the last quarter of 2013, but
its expected tax bill is just 11.2m
It was accused of leaving hard-pressed families and businesses to fund
public services such as hospitals and schools.
Experts say Googles corporation tax bill for 2013 is likely to be much lower
than it should be because the group runs its British operations out of Ireland.
96
+3
Pretty profits: Google CEO Larry Page called the results 'another great
quarter of momentum'
On the basis of Googles global performance and the share of its profits in
the UK we would expect it to pay more than 200million a year in the UK,
said tax accountant Richard Murphy, who helped expose coffee chain
Starbucks for avoiding tax.
What we know is that for the last year it reported, Google declared it paid
just 11million. So the question is on the table where are the missing
millions?
Margaret Hodge, chairman of the Commons Public Accounts Committee
urged the Government to take action. This again shows the scandal where
profits are made from economic activity and yet Google refuses to pay its fair
share of tax, she said.
Jonathan Isaby, chief executive of the TaxPayers Alliance, said: Ordinary
taxpayers are angry when big international companies take advantage of the
loopholes in our increasingly complicated tax system.
97
But the fact is, it is the politicians themselves who are responsible for this by
creating a tax code which is hugely complicated and open to being exploited.
The only solution to this is to create a simpler, fairer and more competitive
tax system.
+3
Investment: Google Glass is one of the products that the company is pouring
its profits into
Google employs almost 2,000 people in the UK, the majority of whom
negotiate advertising sales deals. But it books the transactions in Ireland,
allowing it to minimise the tax it pays here.
A company spokesman said yesterday: Like most multinationals we pay the
bulk of our 1.2billion corporate tax bill where our business originated, in our
case the US. Thats a rate of more than 19 per cent, roughly what a UKbased company would pay.
98
Were also a significant contributor to the UK economy, having created over

2,000 jobs. In 2013 alone we invested more than 300million in property, and
tax related to our UK operations totalled more than 150million.
Read more: http://www.dailymail.co.uk/news/article-2549379/Freshquestions-raised-Googles-tax-avoidance-tech-giant-announces-profits-3-4billion.html#ixzz2wsC9gvB0
Appendix 12
Corporate tax avoidance 2013: following the Starbucks scandal, who has
been paying their fair dues?
By PETER CAMPBELL
PUBLISHED: 22:41, 3 January 2013 | UPDATED: 08:58, 4 January 2013
It has been a torrid 12 months for those following the normally mundane
world of tax.
Multinationals have been hauled in front of MPs to explain their actions, and
in his Autumn Statement the Chancellor launched a host of measures
designed to help close the UKs 32billion tax gap.
The years revelations include shady deals with foreign governments, billions
pouring into tax havens and payment labyrinths where money flows
overseas.
99
+1
Bounty hunter: Clint Eastwood in the classic Western movie The Good, the
Bad and the Ugly
But not everyone was out to short the taxman with some companies and
individuals contributing vast amounts to government coffers.
Lets hope this is the start of a more positive trend for 2013.
THE GOOD
CENTRICA
While it may have been rapped for increasing household energy bills just
before winter, British Gass parent company Centrica has found one friend
this year the taxman.
The company is one of the largest contributors to the Exchequer, and in 2011
paid 760million into government coffers.
100
Its total tax bill including its US operations was 891m, which gives it a
tax rate of more than 40 per cent.
While Centrica pays normal corporation tax rates on its profits, the bulk of the
groups contributions come from its operations in the North Sea.
In its older gas and oil sites. It faces levies of 81 per cent on its profits. Its
newer fields are still heavily taxed, facing rates of 66 per cent.
Analyst forecasts for the coming year predict the groups total tax bill to rise
above the 1billion mark with the vast majority going to the UK
government.
DAVID HARDING, WINTON CAPITAL MANAGEMENT
As millionaires worldwide hop across borders and hide in havens to minimise
their tax bill, one man stands out as an example.
Hedge fund boss David Harding, reckoned to be Britains highest earner,
racked in 87million in income last year.
Of this, he paid 34million to HMRC a tax rate of 39 per cent.
The tycoon founded Winton Capital Management, the worlds fifth largest
hedge fund, and said he could not find anywhere he preferred to live with his
family than Britain.
In the UK, earnings above 150,000 are taxed at 50 per cent, although
Hardings rate is lower because most of his income comes from dividends.
Although he admits he is not whiter than white, at least he has not joined the
distasteful line of wealthy tax fugitives who leave Britain in search of a lower
tax regime.
PETER WOOD
When British entrepreneur Peter Wood floats insurance group esure, he
could stand to gain as much as 128million by selling half his stake in the
group. Expected to be worth more than 1billion, the groups listing is
planned for the first half of this year, depending on market conditions.
But Wood, rather than fleeing to offshore shelters to hide the money from tax
authorities, has pledged to remain here and pay his full share.
101
This is despite spending much of his time in the US, both for business in
Boston and at his Florida home, which would open avenues to avoid paying
full whack.
Although it had been reported he was looking to move to the Channel
Islands, Wood in December promised to remain in Britain. He has been a
fierce critic of Googles tax-dodging in the past.
THE BAD
GOOGLE
At least no one could fault Google for its lack of frankness when it comes to
its tax policy.
When hauled before MPs, the search giants UK boss Matt Brittin was very
open about the fact that the company funnelled billions of pounds a year into
Bermuda, a renowned tax haven.
Googles chairman Eric Schmidt even said he was very proud of the
elaborate structure.
In the last year, Google made 2.6billion of sales in the UK, yet contributed
just 6million in corporation tax.
Accountants who studied the groups figures say the tax bill should have
been more than 200million steeper.
Google avoids tax by registering its operations in Ireland, where corporation
tax rates are much lower, and revenues from its UK advertising sales go
there.
In the UK, it claims only to offer services and support, which are charged at a
much smaller rate.
Google also funnels its Irish income into a Dutch holding company registered
in Bermuda.
Recent figures show last year it sheltered as much as 6billion in the haven
cutting its global tax bill in half.
STARBUCKS
Despite a public backlash and a climb down by offering to pay 20million to
the taxman, Starbucks insists its UK operations are loss-making.
102
The company has not paid corporation tax in the UK in the last three years
and has only contributed 8.6million over the course of its 15 years in
Britain.
It has only made a profit once in the period, despite racking up almost
3billion in sales.
The company was slammed by MPs for paying royalties to the Netherlands,
and buying its coffee in Switzerland. It also takes out inter-company loans,
charged at high interest payments.
All three techniques see money from British coffee drinkers flow overseas.
But the company claims that even without these it would still be losing money
because it overpaid on lots of its store leases during its aggressive expansion
programme in 2000.
Critics said its decision to pay 10million over two years to the taxman was a
token gesture.
THE UGLY
AMAZON
Slammed as shady and evasive, Amazons representative to the Public
Accounts Committee did the groups tarnished image no favours.
The firm was desperate to keep secret its profit figures in the UK, but was
forced to disclose the details to MPs. It emerged it made 74million in pre-tax
profit in 2011, a figure never before released, but paid just 1.8million to the
taxman a rate of just 2.4 per cent.
It made sales of 3.35billion from its UK operations but the money is passed
over to Luxembourg. It admitted to using the tiny state as a base for its
European operations due to the favourable tax rate.
It tried to claim Luxembourg, where it employs 500 people, is the real engine
of the business, rather than the UK, where it employs 15,000.
The UK is registered as a service arm even though many of its distribution
facilities and customers are located here.
Read more: http://www.dailymail.co.uk/money/markets/article2256860/Corporate-tax-avoidance-2013-following-Starbucks-scandal-payingfair-dues.html#ixzz2wsCcmt3Z
103
104
Appendix 13
11 October 2011 Last updated at 15:47
Tax havens: Is the tide turning?
COMMENTS (297)
By Stephen Mulvey & Caroline McClatcheyBBC News
The
Cayman Islands offer a wide range of financial services
Around the world, grassroots opposition to tax avoidance is on the rise.
But a survey shows that all but two of the UK's biggest 100 companies
have subsidiaries in tax havens, from the Cayman Islands to Singapore.
So is big business out of step with public opinion?
Occupy Wall Street protesters demand corporations "pay their fair share" of
tax. U2 comes under fire from protesters at the Glastonbury festival who
accuse the band of taking advantage of low tax rates in the Netherlands. A
global day of action against tax secrecy is marked in dozens of countries
from Ghana to Brazil.
Protesters stage sit-ins in shops and banks around the UK in the hope of
getting tax avoidance by massive corporations on to the political agenda.
U2 have been criticised for

moving their tax affairs to the Netherlands
105
In recent months, a loose coalition on "tax fairness" has emerged, uniting

angry taxpayers, business ethics pressure groups and development NGOs.
The focus is now on tax avoidance - legal arrangements to pay less tax,
sometimes using complicated financial structures - rather than just illegal tax
evasion.
One of the campaigning groups, charity ActionAid, has just
released data that shows, it says, the "addiction" of the FTSE 100 - the UK's
most valuable companies - to tax havens.
The data should have been publicly available, ActionAid says, but in many
cases wasn't - the charity obtained it by filing complaints to Companies
House. Then it counted how many subsidiaries each of the 100 companies
has, and the proportion of them that are located in a tax haven.
The headline results are:
Of the FTSE 100's 34,216 subsidiaries, about a quarter - 8,492 - are in

tax havens
Only two companies - financial advisers Hargreave Lansdowne and

Mexican mining company Fresnillo plc - have no subsidiaries in tax havens
The Organisation for Economic Co-operation and Development

(OECD) says four factors are used to determine whether a jurisdiction is a
tax haven. A place can be considered a tax haven if it imposes no or only
nominal taxes, if there's a lack of transparency, if there are laws that prevent
the effective exchange of information with other governments and if it is trying
to attract investment and transactions that are purely tax driven.
106
But there is no generally agreed definition of "tax haven".
107
For its survey, ActionAid took a list used by the US Congress and added two
further jurisdictions - the US state of Delaware and the Netherlands. Some
consider countries to be tax havens if - like the Republic of Ireland and the
Netherlands - the way they tax cross-border income allows companies to
shift profits to genuine tax havens, Bermuda or the Cayman Islands, for
example, where they avoid tax altogether.
Delaware doesn't make company accounts public, and allows owners of
companies to hide their identities.
ActionAid is not accusing the companies of illegal tax evasion. It
acknowledges that there is not even any proof of legal tax avoidance, just a
strong whiff of it.
"In most cases the huge number of subsidiaries in a given location does not
reflect the actual level of business carried out. This suggests another motive
for their choice," the charity says. But a whiff may be enough, in the current
climate, to harm a company's reputation.
The public debate tends to be black and white, emotive and headlinegrabbing - in reality it's a much more complicated problem
Tax specialistLondon
The phrase "tax haven" itself has become a dirty word, says Peter Truesdale,
associate director of business advisory firm, Corporate Citizenship.
"And that is because there is a clean word, that people understand 'transparency'. If your affairs are not transparent, why should I trust you?
People think someone has something to hide."
A recent report by Mr Truesdale and two other Corporate Citizenship
staff notes: "The distinction between evasion (illegal) and avoidance (lawful)
has dissolved in the eyes of governments, NGOs and citizens."
Increasingly, people are demanding not just that a company's tax affairs are
legal, but that they are "fair".
This is a very difficult thing to define, notes a London tax specialist at a large
financial services firm, who asked to remain anonymous.
"There is a debate to be had about what proper amount of tax to pay to a
particular jurisdiction. One person's perception may be very different from
another's."
When directors take such decisions, he goes on, they have to bear in mind
their duty to increase profits and increase value for shareholders.
108
But while "tax efficiency" is important, it is now rare to find companies that do
not also consider how their actions will be judged in the increasingly harsh
court of public opinion.
A company could look to a low-tax

country to avoid extra bills when moving money around the world
"The public debate tends to be black and white, emotive and headlinegrabbing," he says. "In reality it's a much more complicated problem.
From the business perspective, it can sometimes seem it is the public debate
about tax that is unfair.
A company like Vodafone might point out it has businesses in 30 countries,
and paid 2.6bn in corporate tax worldwide in the last financial year.
Vodafone says the UK is only a small bit of the overall group, and that it
effectively gives 700m to the Exchequer every year in VAT, employee taxes
and national insurance.
Richard Baron, head of taxation at the UK-based Institute of Directors, says
there is no doubt that there are some very complicated avoidance schemes
that use tax havens but people should not always impute a "dodgy reason".
For example, a firm may have a number of businesses in Africa but it wants
to group all of them under a single holding company.
"You want to make sure you don't get an extra layer of tax when the profits
flow up. For that reason you may put a holding company in a low tax country
and you may choose that country because it has strong corporate
governance and you want to know your money is safe."
Companies also do it when they need to create a "group treasury operation"
so money can flow between their different parts all around the world.
"That operation does not belong to any particular country so you put it in a
low tax country as you don't want to suffer an extra bill as you move money
around."
Advertising giant WPP topped ActionAid's table with 611 subsidiaries
registered in places widely regarded as tax havens. But a spokesman says
109
WPP is a holding company for 150 brands which operate in 107 countries,
some of which have a lower tax rate than the UK.
"We have come top of the table because of the international spread of our
business and multi-brand business model and not because of any tax
initiative," he added.
David McNair, senior economic justice adviser at the charity Christian Aid,
says tax havens are used in a variety of ways, but the general principle - for a
business active in a number of countries - is to maximise the amount of profit
made by subsidiaries based where taxes are low, at the expense of those
based where taxes are high.
Which tax haven?
John Christensen of the Tax Justice Network comments:
Bermuda is a niche market for "captive insurance" - a form of in-house

insurance, where one part of a business insures the others, and may charge
high fees
The Cayman Islands offer a wide range of financial services, and is

the world's main domicile for hedge funds
Switzerland is pre-eminent for private banking

The Republic of Ireland and the Netherlands are sometimes used as
conduits to pass corporate profits to other offshore centres
Delaware offers secrecy - it will not disclose who owns a company
This can be done by inflating or deflating prices, when the different parts of
the business trade between themselves. Alternatively, one part can lend to
another at a high interest rate (and profit from tax deductions on the interest
payments at the same time).
There are rules - known as transfer pricing rules - which govern the prices
that can be charged between companies in the same group but McNair says
they are notoriously hard to apply, particularly for developing countries.
"Transfer pricing rules enshrine the 'arm's length principle'. The problem is
determination of what is an arm's length price for, say, intellectual property,
management services, or interest rates on an intra-company loan - where
there is no open market and no comparable price to determine if the arm's
length principle has been applied."
Christian Aid's concern, like ActionAid's, is that the biggest losers are
developing countries, which often lack the expertise and the capacity to
prevent companies exploiting tax loopholes, and when tax havens are
involved their secrecy means they lack the most basic information.
110
ActionAid cites an estimate mentioned by the secretary general of the OECD,

Angel Gurria, that developing countries lost almost three times as much to
tax havens each year as they receive in aid.
Christian Aid was one of the organisers of the global day of action, on Friday,
aimed at persuading the G20 to put tax secrecy on the agenda for its summit
in Cannes next month.
The G20 summit in April 2009 ended with leaders declaring their intention to
take action against tax havens but campaigners argue that the efforts since
then to increase transparency have in practice had little effect.
According to McNair, public concerns about tax secrecy and tax fairness can
be traced partly back to this summit. The recession has done the rest.
"We are facing austerity, governments are cutting basic services," he says. "If
companies are getting away with escaping tax, this may be legal but it's
unfair."
111
112
Appendix 14
24 June 2013 Last updated at 15:00
Serious tax evasion reports fall to five-year low
There have been protests against

large corporations' tax affairs
Cases of serious tax evasion reported by local tax offices are at their
lowest level in the last five years, according to law firm Pinsent Masons.
HM Revenue and Customs (HMRC) defines tax evasion as "serious" when
the sum involved is higher than 50,000 or it is worthy of prosecution.
Serious cases identified by local HMRC offices fell 16% between the two
most recent tax years.
The report comes as governments have vowed to cut corporate tax evasion.
HMRC's local offices reported 2,888 suspected cases of tax evasion, down
from 3,456 in the previous 12 months, it said.
However, this is only one avenue used to highlight and report tax evasion.
Specialist teams, and campaigns to disclose offshore cases could also
pinpoint evasion cases.
As a result, the law firm was unable to conclude whether evasion as a whole
was rising or falling.
It said that HMRC has stepped up its anti-evasion efforts considerably in
recent years, including having new powers, such as being able to impose
penalties of up to 200% of the original tax owed if an individual does not
declare any income or capital gains that has been hidden from HMRC in an
offshore bank account.
'Tools'
113
There have been threats of more focus being placed on prosecutions for
evasion, and there was a suggestion that this could be preventing some
evasion that might have taken place otherwise.
"This decline in suspected tax evasion doesn't tally with the rhetoric from
some quarters that the British economy is being undermined by a chronic
under-collection of tax revenues," said Phil Berwick, a partner at the law firm.
"HMRC has plenty of tools at its disposal to catch tax evaders which serves
as a huge deterrent to those considering tax evasion."
Pinsent Masons advises clients who may face investigations into their tax
affairs by HMRC. Mr Berwick admitted that by the very fact of its secretive
nature, it is almost impossible to quantify the total amount lost to tax evasion.
Last week, the G8 major economies agreed new measures to clamp down on
money launderers, illegal tax evaders and corporate tax avoiders.
And on Sunday, US coffee giant Starbucks said it has paid 5m in UK
corporation tax - its first such tax payment since 2009. It announced late last
year it would pay more corporation tax after a public outcry and an
investigation by MPs.
Starbucks has only reported taxable profit once in 15 years in the UK.
"International co-operation has been stepped up significantly as HMRC has
striven to curb tax evasion," Mr Berwick added.
"Tax evaders are now realising that HMRC has a much greater ability to
tackle evasion, even if individuals conceal their assets abroad."
HMRC said that the tax gap - which calculates uncollected tax - had
remained broadly the same for the last few years.
"These figures represent only one channel to identifying tax evasion.
Following a review of our referral process, our investigations are now better
targeted resulting in an increase in the number of successful prosecutions,"
said a spokesman for HMRC.
"Where we find someone not playing by the rules we will take action to
prosecute."
114
Appendix 15
21 May 2013 Last updated at 12:15
Google, Amazon, Starbucks: The rise of 'tax shaming'
COMMENTS (534)
By Vanessa Barford & Gerry Holt
BBC News Magazine
Global firms such as Starbucks, Google and Amazon have come under
fire for avoiding paying tax on their British sales. There seems to be a
growing culture of naming and shaming companies. But what impact
does it have?
Companies have long had complicated tax structures, but a recent spate of
stories has highlighted a number of tax-avoiding firms that are not seen to be
playing their part.
Starbucks, for example, had sales of 400m in the UK last year, but paid no
corporation tax. It transferred some money to a Dutch sister company in
royalty payments, bought coffee beans from Switzerland and paid high
interest rates to borrow from other parts of the business.
Amazon, which had sales in the UK of 3.35bn in 2011, only reported a "tax
expense" of 1.8m.
And Google's UK unit paid just 6m to the Treasury in 2011 on UK turnover
of 395m.
115
The art of paying less tax
Multinationals such as Google, Amazon and Starbucks have been

criticised by the Public Accounts Committee over tax avoidance
Stung, Starbucks plans to change its arrangements and pay UK

corporation tax
Global firms' tax pay 'an insult'

Everything these companies are doing is legal. It's avoidance and not
evasion.
But the tide of public opinion is visibly turning. Even 10 years ago news of a
company minimising its corporation tax would have been more likely to be
inside the business pages than on the front page.
What changed? And is "shaming" of companies justifiable and effective?
Momentum has been growing for the last few years.
In September 2009, the Observer ran with the headline: "Avoiding tax robs
our public services, declares minister". The paper reported that the
government was planning to say tax is a "moral issue" and that it was
"determined to end avoidance and evasion."
October 2010 - and the Vodafone case - saw the Daily Mail
report: "Vodafone closes Oxford Street store at 6bn tax protest".
A few months later and the focus moved to Sir Philip Green's business
empire."Crisis? What crisis?" reported the Mail, which said the TopShop
boss was "enjoying" a Barbados holiday while thousands of campaigners laid
siege to his UK stores.
Barclays Bank was the next target - in February 2011 the Daily Express
reported on the "raid" by tax protesters, who shouted: "Dave and George
do your sums." Later that same month, the Guardian ran with the
headline "UK Uncut: 'People are starting to listen to us'".
Withdrawal of custom
116
Another impact of tax shaming is that some people, such as 45-year-old selfemployed businessman Mike Buckhurst, from Manchester, boycott brands.
"I've uninstalled Google Chrome and changed my search engine on all my
home computers. If I want a coffee I am now going to go to Costa, despite
Starbucks being nearer to me, and even though I buy a lot of things online, I
am not using Amazon.
"I'm sick of the 'change the law' comments, I can vote with my feet. I feel very
passionate about this because at one point in my life I was a top rate tax
payer and I paid my tax in full," he says.
To some extent, the shift is down to the recession, according to Dr Stuart
Roper, a corporate reputation expert at Manchester Business School.
"We are in an age of deep public spending cuts and real austerity. And this
[tax avoidance] is not a victimless crime, if you like. If this was six or seven
years ago, pre-financial crisis, I don't think it would have had the same
impact it's had now," he says.
War on Want's tax justice campaigner Murray Worthy says there has also
been a change in public perception.
"As the public have got to understand better what corporate tax avoidance is,
there is a clear sense of outrage that is going well beyond a small group of
protesters - it's something that the public feels is really not right with the
current system," he says.
Discussions of the ethics of tax avoidance are now everywhere. But a few
years back, it was a hardcore gaggle of activists and campaign groups like
UK Uncut that were staging sit-down protests in stores such as the Arcadia
Group, Boots, Vodafone and Fortnum and Mason.
Journalists and newspapers are also doing their own investigations, argues
Worthy, with the appearance of Google, Starbucks and Amazon before the
117
Public Accounts Committee a result of stories by the Daily Telegraph,

Reuters and the Guardian respectively.
In a report published on Monday, the committee's chairwoman Margaret
Hodge said the level of tax taken from some multinational firms was
"outrageous" and that HM Revenue and Customs needed to be "more
aggressive and assertive in confronting corporate tax avoidance".
MPs also called for those who do not pay their "fair" share to be named by
the government, but Prime Minister David Cameron and Chief Secretary to
the Treasury Danny Alexander ruled it out, saying it would breach taxpayer
confidentiality.
But just how effective is tax shaming anyway?

The idea that Starbucks would voluntarily pay more tax than it legally needs
to seems extraordinary on the surface, and an argument for the effectiveness
of tax shaming.
"Up until yesterday, I wouldn't have thought these stories had much effect. I
thought companies would carry on doing what they were doing, but look over
their shoulder, in terms of their reputation," says Michael Devereux, a tax
expert at Said Business School, University of Oxford.
Corporate tax avoidance
Locating factories, service and distribution hubs and regional HQs

in low-tax jurisdictions
Starbucks, for example, sources its UK coffee from a wholesale

trading subsidiary in Switzerland
And Google operates in Bermuda and Ireland

Transfer pricing is when a division of a multinational in one country
charges a division in another country for a product or a service
118
This means artificially high charges can be levied internally, to siphon

money from a high-tax country to a low-tax one
"Starbucks appears to be saying they don't think they owe any more money,
but will pay anyway. If that's true, it's having a reputational effect - but it's a bit
odd in terms of the tax system, we wouldn't want the tax system to be
voluntary," he says.
Branding experts agree the reputational side of things is key, as it is hard to
measure the direct impact of tax shaming on sales and profit.
Dr Sue Bridgewater, a marketing expert at Warwick Business School, says if
a company with a strong brand damages that, it also damages its financial
"value".
"Customers have very long memories and their emotional tie to a brand is a
very important part of the loyalty," she says.
But Roper says even reputational damage is difficult to ascertain and can
quickly dissipate.
Another impact of tax shaming is that individuals can boycott brands, but
Roper says the number of people who take direct action is "relatively low".
What is more dangerous for companies is social media, he says - citing
#boycottstarbucks, which was formed in the wake of the Starbucks story because "a small number of people [can] activate and ferment dissent among
another group".
But is tax shaming justifiable?
Amazon, Starbucks and Google are by no means unique in minimising their
UK tax liability. And individuals often try to lower their own tax bill by
exploiting rules in inheritance tax, or gifting to charity.
Start Quote
Is it remotely plausible that Google, Amazon and Starbucks would
suddenly emigrate and stop trying to sell as much as possible to British
consumers?
Robert PestonBusiness editor

Bridgewater says large multinational corporations have been using various
methods of being "tax efficient" for decades, and it is "probably sound
business practice".
119
"The issue arises when we feel that a company has crossed a line and what
it does to be tax efficient is morally, if not legally, inappropriate," she says.
For a lot of companies, it is about fairness, according to Simon Walker,
director general of the Institute of Directors.
"It is very frustrating for many companies who pay large tax bills that some
multinationals are able to avoid doing so.
"The solution must be simplifying the tax system, not simply hectoring from
Westminster. If these firms are immoral to take advantage of tax loopholes,
then politicians are surely immoral for creating the loopholes in the first place.
Taxes should be simpler to cut down on avoidance and relieve the burden
our complex tax code puts on companies who do try to do the right thing," he
says.
The director-general of the CBI, John Cridland, agrees the crux of the debate
comes down to fairness.
"A company may be making good revenues but pay lower amounts of tax for
completely legitimate business reasons. But if it's doing this by using socalled 'black-box' arrangements, where transactions are designed for no
commercial purpose at all, other than to avoid tax, then the CBI does not
condone it, even if it is legal," he says.
He says if the government wants a different result from the tax system, it
must change the rules.
The pressure to do so has rarely been greater.
120
121
Appendix 16
Google was never meant to be this big in Ireland but plans change
Google Ireland boss John Herlihy explains to Nick Webb how a brief chat led
to the internet giant spending 2.7bn in Ireland
Google Ireland boss John Herlihy

NICK WEBB PUBLISHED 23 MARCH 2014 02:30 AM
Flashing lights, screeching sirens and a security door slowly started to
descend as we got out of the lift. Twentysomethingers of 71 nationalities
bustling towards the exits as Google's Silicon Docks headquarters began to
be evacuated.
It must have been all the questions about that Google tax rate.
I'd just finished interviewing Google's man in Ireland John Herlihy when the
shutters came down in one of the world's most powerful but also most
security conscious companies. Like all multinationals Google is a bit huffy
about how much tax it pays.
Herlihy, "a recovering accountant" from KPMG, has been the top Irish guy in
Google since January 2005. The godzilla-sized internet giant has just
celebrated 10 years in Ireland. It started off as a small five-man operation in
the Regus serviced offices on Dublin's Earlsfort Terrace. Now it employs
2,500 Googlers here plus almost the same again in various ancillary roles. It
was never meant to be this big.
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"We moved down here and we'd a floor and a half with the option for the top
four floors. The ground level unit wasn't even built. There were no stairs
down to it. I joined in early 2005 and had Eric (Schmidt the Google
chairman) over. We showed him what we were going to do and that night
convinced him to take up the option on the top four floors," Herlihy recalls.
"I told Eric that there's a tremendous opportunity here. What we have is a
fantastic talented workforce which is going to enable us to do more than we'd
originally thought. There was an original plan to do a certain series of things
but we saw that Dublin was a great place to bring other Europeans and work
with the local Irish and together we could solve global problems," he said.
"Eric backed us and that was the big thing. We went out and hired more
people and the growth plans changed." Google had originally thought of
having "100 to 150" staff in Dublin. "It's much, much bigger than we thought
it'd be."
"We exceeded the targets. You don't get investment on the basis of hope,
you get it from real plans," the 46-year- old Herlihy notes, swigging some
fizzy water out of a bottle. His office is on the corner of the 13th floor of the
former Montevedro building.
Google Ireland is neck and neck with their New York operations to be the
biggest office outside of the Californian HQ at Mountainview. "We are
relatively over-indexed, given the size of Ireland," Herlihy says. Google's
Dublin footprint is double the size of London's operations.
There's a real feeling of university campus around Google as staffers sit on
the floor tapping away on laptops. There aren't an awful lot of Irish around.
The numbers have improved slightly, about 30 per cent are now Irish. The
other multilingual Googlers are in gym gear or ambling around with squash
rackets.
The Google shop across the way is selling branded cups for 8 and Google
hoodies for 40. A starting wage of 30,000 helps.
Google, Facebook, Twitter and the other online giants are at the centrepiece
of the Government's foreign direct investment strategy. Bung them all in close
proximity and see what happens.
"I think because of the cluster you have here that there's a tremendous
opportunity for businesses that are focussed on internet delivery. We move
incredibly quickly. Exports are vital. Every country in the world is trying to
grow their exports.
"The digital economy is growing seven times faster than the other economies
in Europe. In Ireland it's growing 10 times faster.
"The general economy here is forecast to grow at 1.6 per cent but the digital
economy is growing at 16 per cent," he says. "Companies that embrace the
internet are twice as likely to create jobs."
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"Where people are tooled up for this, Ireland has a great opportunity because
we are very flexible and innovative. But if you're caught in the past it's going
to be tough," he says.
Limerickman Herlihy went to the same school The Crescent as
Microsoft's Paul Rellis. After working in KPMG, Herlihy won a green card in a
lottery and moved to the US West Coast in the early 1990s. He worked with
Larry Ellison's Oracle before moving to Adobe and Peoplesoft. There was
even a start-up.
"I ran a mobile payments company, which would be fantastic to run in 2014.
But in 2003/04 it was 10 years before its time. It was a big lesson in life that
timing is critical," he says. "It doesn't matter how good the solution is, if the
market isn't ready for it ..."
Herlihy was helping a friend restructure a business when he met the then
Google chief operating officer Sheryl Sandberg (now running Facebook) and
was hired.
"I did over 20 interviews. I always like to say that they weren't sure of me, so
they kept bringing me back to see if they could trip me up," he laughs. He's
been the big enchillada for Google here for 11 years, so they must have been
pretty damn sure he was the man. And he's not even that techy. Relatively
speaking.
Google's Larry Page and Sergei Brin are so smart that they have brains the
size of pumpkins. What Google does now really will define what we will be
doing in the future. It's that influential. Google is on the curve, several miles
ahead of the curve.
"I gave a speech a couple of years ago, where I basically predicted the death
of the desktop computer and the rise of mobile. I was panned. People said I
was nuts," he smiles.
But Herlihy was bang on the money. So what's coming down the tracks now?
"I think you're going to have large numbers of wearables, you're already
seeing that in terms of Google glass and people are coming up with all kinds
of watches and stuff," he suggests. Last Wednesday Google took the battle
to Apple by rolling out its android wear, which brings its android operating
system to smart watches.
"I think YouTube is fascinating, with the quality of the content and how people
are using it. YouTube is now the second largest search engine in the world,"
he says. We are helping create a channel on YouTube and to monetise it."
An example, according to Herlihy, is where a world-famous kitchen designer
in California has her own channel. An Irish customer could log into her and
see what she has to say about their own kitchen, paying by the hour for her
time. She doesn't even need to leave her office.
"There's so many things that can be done in this area. If there's somebody
with unique content, we are helping them get new customers. That's a
potential new business."
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There's a bit of misconception about what Herlihy has actually built up in

Ireland. With much but not all of the top R&D stuff in the US, Google's
Irish operation has sometimes been written off as little more than a giant call
centre. Around 60 per cent of Google's staff in Ireland are in sales and
marketing, rather than the serious braniac stuff.
"Sometimes you see people make light of what we do here. This is a very
sophisticated sales operation," he says.
With its Adwords targeted advertising operations, Google is now the biggest
advertising company in the world.
"We sit down with customers and show them their product could interest
people in 10 other markets. We show them the Google search trends that
show there's an opportunity for them, that they need to advertise into markets
where they didn't even know there was a demand for the product," he says
without pausing for breath.
This means that an Irish firm producing handmade wooden chopping boards
for the domestic market may suddenly find there's a big demand for their
product in Argentina or Ulan Bator.
"We're one of the biggest influencers of cross-border trade and were hugely
helping small businesses to export." And most people thought it was just a
search engine.
Outside of selling ads to tens of thousands of businesses, Google's Irish staff
are also involved in working under the hood of the internet giant. You get the
sense that the slick hipster twentysomethings are part of the sales and
marketing group, while the people working on the infrastructure side are the
ones with the bad hair and bad teeth.
Herlihy says that "a huge portion" of Google's infrastructure is managed out
of Ireland. As part of standard testing and future-proofing the worldwide
Google empire, "we take down parts of the world and run it from here," he
says.
Herlihy clams up a little when it comes to the details. Google is phenomenally
prickly when it comes to security. Signs down in reception forbid lots of stuff
like photography within the building.
The remaining staff are involved in general administrations for Google,
running stuff like payroll and accounts receivables out of Ireland. Google's
European Learning and Development Centre is in Ireland, so all new
European Googlers come to Dublin for a couple of weeks of brainwashing.
'Induction' they call it.
Across the roof is Google's new building. It now has four on Barrow Street.
The scale of Google's investment in Ireland is truly massive. It has bought
three monster office blocks, is close to sealing a deal for another one and is
building a jumbo-sized data centre out in west Dublin.
And then there's payroll. Google's Irish business has sucked in close to
2.7bn since 2003. That's one heck of a bet on Ireland.
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On the flip side it pays bugger all tax here. Multinationals such as Google,
Apple and Forest have been bashed up for using exotic accountancy rinky
dink such as the "Dutch Sandwich" to help legally slash their tax bills by
shifting money around from Ireland to Holland and the Caribbean. In 2012,
Google Ireland moved 8.6bn to Bermuda via Holland as a tax reduction
device. That year, Google Ireland paid 17m in Irish corporation tax, having
reported pre-tax profits of 153.9 on turnover of 15.5bn.
"There are huge grey areas in this area," says a well- schooled Herlihy. "My
read on it is over the last 20 years, governments went out with a series of
economic incentives to attract companies in," he says. "If you look at our
overall effective tax rate," he suggests, "It was over 20 per cent." Ireland was,
er ... "lower".
The Irish rate is so low because "there were a series of structures put in
place by government and in that situation we adhere to the rules."
Is there a moral issue over firms paying too little tax?
"I don't know. I'd be of the view that there's a rule of law and you should
always satisfy that rule of law," he says.
And back to that moral issue? "Not really," he says. "If the speed limit is
120mph you should stay below that. If it goes up to 125mph you go to that. At
the end of the day, society relies on governments to put in place a series of
rules and you operate within these rules."
The hot air and outrage generated in the US following Senate hearings about
Apple's tax practices in Ireland has pushed the issue of multi-nationals and
their artificially low tax payments right to the front of the queue for political fist
shakers.
"Clearly we're moving towards a world where there's greater transparency
and things are going to change and rules may change. We look forward to
that and we'll be at the forefront of embracing that change," he says. Almost
convincingly.
New changes in global tax policy, fronted by national governments or the
OECD, will likely bring higher tax bills. Hardly a time for whooping, either for
the companies paying more tax or countries like Ireland which may lose a
serious competitive advantage by being forced to make resident companies
shell out more tax.
But tax isn't the only thing keeping Google here. Its "stickability" is seen in its
2.7bn spend on staff and assets.
"Are you delivering quality business? Can I solve problems here and
continue to give economic benefits to my customers? If we can continue
doing that, then we have a basis for a business," he adds.
"I think you create the profits first and worry about what you do with them
after."
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Appendix 17
Starbucks Losses Hit 30m In Last Tax Year
Starbucks UK reports another annual loss, despite its top directors seeing
their total pay increase by 90%, Sky News learns.
3:26pm UK, Friday 28 June 2013
Starbucks faced a 2012 backlash from some UK consumers over its tax
affairs
By Pete Norman, Sky News Online
Starbucks UK reported a net annual loss of more than 30m for the 12
months to September 30, according to newly-released documents.
Accounts filed with Companies House show that Starbucks Coffee (UK) Ltd
reported a total turnover of 413.39m in 2011-12, compared to 397.7m in
2010-11.
Gross profit was 70.5m, however after administrative losses of 98.2m including royalty and licensing fees of 26.48m - the loss for the 2011-12 tax
year amounted to 30.4m, the company said.
The net loss in the tax year 2010-11 was 32.8m. In 2009-10 the loss after
tax of 34.2m, while in 2008-9 it was 52m and in 2007-8 the loss was 46m.
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The directors of the company took home a combined 1.08m for the year
ending September 30, up from 590,319 in the previous year.
The figure for directors includes shares that have vested in the period. No
director shares were vested in financial year 2010-11 (FY11).
A Starbucks spokesman told Sky News: "All full and part-time employees of
Starbucks receive shares as part of their pay.
"Over half of the remuneration provided to our directors last year comprised
vested equity shares."
He added: "The reason for the increase is that the directors took the decision
to sell some of their vested shares in FY12.
"These shares could have been granted at any point during the directors
tenure with the company, and can be sold once vested."
In real terms, it means salaries for the three directors have risen by around
10per cent
The accounts show that the highest paid director of the company received a
total package of 708,019, including 116,560 in relocation benefits.
The top director's pay was increased 90% from the previous year, when it
amounted to 372,440
Starbucks was grilled by MPs last October over why the company had paid
no UK corporation tax for three years, despite total sales of 1.2bn in the
period.
It confirmed that the company had only made a UK profit once in the 14
years it had been trading in the country.
The subsequent public furore led to managing director Kris Engskov telling
Sky News, in December, that the company decided to "take action".
It announced that the UK firm would pay HM Revenue and Customs (HMRC)
20m over two years but critics slammed it as a gift and not a legal
requirement.
Starbucks recently paid its first 'instalment' of 5m to HMRC for the financial
year 2012-13, after it said it would make "certain deductions" relating to
royalties paid to other arms of the multinational.
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It intends to pay another 5m before September 30 and another 10m in the

2013-14 tax year.
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Appendix 18
Amazon claimed sales in the UK of 207m last year. How much did
amazon.co.uk actually take? 2.9bn
1/2
Online retailer forced to reveal full extent of its tax avoidance policies by
Public Accounts Committee
MARTIN HICKMAN
TUESDAY 27 NOVEMBER 2012

Amazon UK's total sales topped 2.9bn last year, according to previously
secret figures that expose the extent to which the online giant has been
minimising its tax liability in Britain.
The revelation that the retailer generated vast sales while declaring
Amazon.co.uk revenues of only 207m sparked fresh calls last night for a
crackdown on tax avoidance by multinational companies.
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Figures supplied by Amazon to the Commons Public Accounts Committee

(PAC) show that for the past three calendar years its UK sales were 7.1bn.
For the same period, 2009-2011, the online retailer's UK company,
Amazon.co.uk Ltd, paid 2.3m in corporation tax.
The secret of Amazon's low tax bill is that it books most of the sales from UK
customers at its European subsidiary, Amazon Eu Sarl, in low-tax
Luxembourg which pays its UK firm for warehousing services.
When he appeared before the PAC's tax inquiry on 12 November, the
company's director of public policy, Andrew Cecil, angered MPs by telling
them he did not know the company's revenue in the UK. He then agreed to
supply the figures "in confidence" at a later date.
Those figures, published by the PAC yesterday, show that in 2009 1.86bn of
sales flowed through the website Amazon.co.uk. In 2010 sales were 2.36bn
and in 2011 the last full year available 2.9bn.
At the same time Amazon's accounts for 2011 with Companies House show
Amazon.co.uk Ltd had revenues of 207m. Despite the large amounts of
business, in 2009 Amazon.co.uk paid no UK corporation tax. In 2010 it paid
517,000 and in 2011, 1.8m.
Amazon has not released its profit figures on its UK sales, which are bundled
into its European figures, so the corporation tax that would have been
payable in the UK had all the sales been registered here is unknown.
However, in the US, where its operation is much larger, its profit margin is 3.5
per cent. Assuming a UK profit margin of 5 per cent, Amazon could have paid
UK corporation tax of 96m between 2009 and 2011. In reality, because it
routes its sales through Amazon EU Sarl, amazon.co.uk, the UK
"warehousing" subsidiary, paid 2.3m for the three years.
The disclosure of the full scale of Amazon's UK sales, after criticism of the
tax affairs of fellow American companies Starbucks and Google, prompted
calls for a crackdown by HMRC.
Richard Murphy, director of the Tax Research campaign, said: It's very hard
to believe that a company making sales of 2.9bn in the UK and employing
15,000 staff in this country has almost no tax liability when its underlying
business shows signs of growth.
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"I think the PAC needs to ask how it can so easily expose what looks like an
accountancy charade when the HMRC is apparently so willing to accept it.
"It should also look at the rules on company residence so we can say that
this company is trading in the UK, even if it wants to claim it is in
Luxembourg." He added: "I hope the PAC, frankly, calls evidence on how the
rules can be changed."
Amazon defended its record. In a statement to The Independent, it said:
"Amazon pays all applicable taxes in every jurisdiction it operates within.
"Amazon EU serves tens of millions of customers and sellers throughout
Europe from multiple consumer websites in a number of languages
dispatching products to all 27 countries in the EU. We have a single
European Headquarters in Luxembourg with hundreds of employees to
manage this complex operation."
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Appendix 19
MPs accuse HMRC of being soft on big business
Public Accounts Committee says HMRC happy to pursue smaller businesses
but not large multi-national companies
Margaret Hodge, chairman of the Public Accounts Committee, said HMRC is not clearly demonstrating that it
is on the side of the majority of taxpayers Photo: Daniel Jones
By James Quinn, Financial Editor

12:01AM GMT 19 Dec 2013
HM Revenue and Customs has been accused of failing to collect enough tax from big
business and not using the powers at its disposal to do so by an influential committee of
MPs.
The Public Accounts Committee (PAC), chaired by Margaret Hodge, accused the tax
man of not clearly demonstrating that it [HMRC] is on the side of the majority of
taxpayers who pay their taxes in full.
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In a withering assessment of the work done by the 65,000 staff within the Government
agency, the PAC said that HMRC needs to strike the right balance between support
and enforcement.
The committee said that HMRC seemed to lose its nerve when it came to launching
prosecutions against large multi-national companies but is happy to pursue smaller
businesses.
It also said that it was astonished that HMRC could not give any reasons as to why it
had collected 440m from UK holders of Swiss bank accounts in the current tax year which ends in April 2014 - when it had predicted it would collect 3.12bn.
The raid on Swiss bank accounts was part of a highly publicised crackdown on
international tax avoidance launched by George Osborne, the Chancellor, in August
2011.
The report said that rather than going down, the tax gap - the difference between tax
collected and that which should be collected - grew to 35bn in the 2011/12 tax year.
Ms Hodge said: "In pursuing unpaid tax, HMRC has not clearly demonstrated that it is
on the side of the majority of taxpayers who pay their taxes in full. Last year the
department collected less tax in real terms than it managed to collect in 2011/12. This
was despite the stated ambition to crack down on tax avoidance.
Pointing its anger at a succession of Government policies which have aimed to market
the UK as a low tax environment - including reducing corporation tax to 20pc by 2015
and changing the rules on controlled foreign companies - the PAC said that HMRC had
not adequately considered the impact such measures would have.
The committee found that UK companies are reducing tax liabilities by borrowing in the
UK to invest in an offshore subsidiary and then offsetting borrowing costs, while multinational companies are using the Eurobond market to lend money to UK subsidiaries via
low-tax jurisdictions and offsetting the interest payments against UK profits.
The 14-man committee issued a series of recommendations on the back of its report,
not least that it should be more willing to pursue prosecutions against large businesses
and to better understand how companies and their advisers will interpret new tax rules
and laws.
The report follows a series of hearings in October with senior HMRC staff, including Lin
Homer, chief executive.
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A HMRC spokesman refuted the report's findings, saying: HMRC strongly disputes the
conclusions in the Public Accounts Committee report and challenges the Committees
selective and misleading use of figures.
HMRC seeks to collect the tax that is due from all taxpayers, so that everyone pays
their fair share in accordance with the tax laws passed by Parliament. We have secured
more than 50 billion of additional tax from our compliance work since 2010, including
23bn from large businesses.
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Appendix 20
Special Report: How Starbucks avoids UK taxes
BY TOM BERGIN
LONDON Mon Oct 15, 2012 2:48pm BST
(Reuters) - Starbucks' coffee menu famously baffles some people. In Britain, it's
their accounts that are confusing. Starbucks has been telling investors
the business was profitable, even as it consistently reported losses.
This apparent contradiction arises from tax avoidance, and sheds light on
perfectly legal tactics used by multinationals the world over. Starbucks stands
out because it has told investors one thing and the taxman another.
The Seattle-based group, with a market capitalization of $40 billion, is the
second-largest restaurant or cafe chain globally after
McDonald's. Accounts filed by its UK subsidiary show that since it opened in
the UK in 1998 the company has racked up over 3 billion pounds ($4.8 billion) in
coffee sales, and opened 735 outlets but paid only 8.6 million pounds in income
taxes, largely due because the taxman disallowed some deductions.
Over the past three years, Starbucks has reported no profit, and paid no income
tax, on sales of 1.2 billion pounds in the UK. McDonald's, by comparison, had a
tax bill of over 80 million pounds on 3.6 billion pounds of UK sales. Kentucky
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Fried Chicken, part of Yum Brands Inc., the no. 3 global restaurant or cafe chain
by market capitalization, incurred taxes of 36 million pounds on 1.1 billion
pounds in UK sales, according to the accounts of their UK units.
Yet transcripts of investor and analyst calls over 12 years show Starbucks officials
regularly talked about the UK business as "profitable", said they were very
pleased with it, or even cited it as an example to follow for operations back home
in the United States.
Troy Alstead, Starbucks' Chief Financial Officer and one of the company officials
quoted in the transcripts of calls Reuters reviewed, defended his past comments,
saying the company strictly follows international accounting rules and pays the
appropriate level of tax in all the countries where it operates. A spokeswoman
said by email that: "We seek to be good taxpayers and to pay our fair share of
taxes ... We don't write this tax code; we are obligated to comply with it. And we
do."
When presented with Reuters' findings, Michael Meacher, a member of
parliament for the Labour Party who is campaigning against tax avoidance, said
Starbucks' practice "is certainly profoundly against the interests of the countries
where they operate and is extremely unfair ... they are trying to play the taxman,
game him. It is disgraceful."
There is no suggestion Starbucks has broken any laws. Indeed, the group's
overall tax rate - including deferred taxes which may or may not be paid in the
future - was 31 percent last year, much higher than the 18.5 percent average rate
that campaign group Citizens for Tax Justice says large U.S. corporations paid in
recent years.
But on overseas income, Starbucks paid an average tax rate of 13 percent, one of
the lowest in the consumer goods sector.
The UK tax authorities and the U.S. Internal Revenue Service (IRS) said
confidentiality rules prevented them from commenting.
A LOSSMAKER WITH FAT MARGINS
You could think of Starbucks' differing versions of its experience in the UK as
two different coffees. To its investors, it sells an espresso - strong and vibrant.
The UK taxman gets a watered-down Americano.
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The contradiction between the two stories becomes evident from scrutiny of its
group reports and the transcripts of 46 conference calls with investors and
analysts.
Like most big corporations, Starbucks' group earnings statements do not break
down its profits and tax payments by country, although on calls it occasionally
shares details about larger markets such as the UK. But companies operating in
the UK are obliged to lodge accounts at the company register, Companies House,
to give a picture of the unit's financial performance.
In the 2007 financial year to end-September, Starbucks' UK unit's accounts
showed its tenth consecutive annual loss. Yet that November, Chief Operating
Officer Martin Coles told analysts on the fourth-quarter earnings call that the UK
unit's profits were funding Starbucks' expansion in other overseas markets.
Then-Chief Financial Officer Peter Bocian said the unit had enjoyed operating
profit margins of almost 15 percent that year - equivalent to a profit of almost 50
million pounds.
For 2008, Starbucks filed a 26 million pounds loss in the UK. Yet CEO Schultz
told an analysts' call that the UK business had been so successful he planned to
take the lessons he had learnt there and apply them to the company's largest
market - the United States. He also promoted Cliff Burrows, former head of the
UK and Europe, to head the U.S. business.
Schultz said he looked forward to Burrows "now applying that same drive and
business acumen to leading our U.S. business."
In 2009, accounts filed in London claimed a record loss of 52 million pounds for
the financial year to September 27, while CFO Alstead told investors on a call
that the UK unit was "profitable."
For 2010, the UK unit reported a 34 million pounds loss, and Starbucks told
investors that sales continued to grow.
Starbucks UK unit's accounts for the year to September 2011 showed a 33 million
pounds loss. Yet John Culver, President of Starbucks' International division, told
analysts on a call earlier that year that "we are very pleased with the performance
in the UK."
When Reuters asked Starbucks' CFO Alstead which version was accurate Starbucks' accounts for the UK taxman, or its comments to investors, he said:
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"The UK is very troubled, unfortunately. Historically it has performed a little bit

better than it does now."
He did not explain why the UK business was so disappointing, but said Starbucks
was "taking very aggressive actions" to improve its performance, including
changing its cost structure.
Meacher, the politician, said Starbucks' experience reflects broader problems in
the UK system, which allows companies to pay less tax than they morally should.
Tax campaigners say that failure is partly policy: successive governments have
urged the tax authority to take a pro-business stance. The UK is one of the few
rich countries not to have general anti-avoidance legislation, which the
government is preparing now.
A LICENCE TO LOSE MONEY
Presented with the contradiction between Starbucks' UK accounts and its
comments to investors, Starbucks' CFO Alstead identified two factors at play,
both related to payments between companies within the group.
The first is royalties on intellectual property. Starbucks, like other consumer
goods businesses, has taken a leaf out of the book of tech companies such as
Google and Microsoft. Such firms were identified by Senator Carl Levin,
chairman of the U.S. Senate Permanent Subcommittee on Investigations, in a
September hearing on how U.S. companies shield billions from tax authorities.
He said they were engaged in "gimmickry" by housing intellectual property units
in tax havens, and then charging their subsidiaries fat royalties for using it.
Like those tech firms, Starbucks makes its UK unit and other overseas operations
pay a royalty fee - at Starbucks, of six percent of total sales - for the use of its
intellectual property' such as its brand and business processes. These payments
reduce taxable income in the UK.
McDonald's also charges its UK subsidiary a royalty for intellectual property',
although at a lower rate of 4-5 percent.
The fees from Starbucks' European units are paid to Amsterdam-based
Starbucks Coffee EMEA BV, described by the company as its European
headquarters, although Michelle Gass, the firm's president in Europe, is actually
based in London.
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It's unclear where the money paid to Starbucks Coffee EMEA BV ends up, or
what tax is paid on it. The firm had revenues of 73 million euros in 2011 but
declared a profit of only 507,000 euros. When asked how it burnt up all its
revenue, Alstead pointed to staff costs and rent. The HQ has 97 employees.
Alstead said some of the unit's revenue was also paid to other Starbucks units,
including one in Switzerland. He declined to say if fees paid for the use of the
brand, which originated in the United States, are sent back to be taxed.
Professor Michael McIntyre at the Wayne State University Law School said it
was rare for such fees to be repatriated to the United States, where corporate
profits are taxed at up to 39 percent. In contrast in Switzerland, lawyers say,
earnings from royalties can be taxed at rates as low as 2 percent.
Starbucks declined to comment when asked if it used offshore jurisdictions in
this way.
ARM'S LENGTH
The UK tax authority, Her Majesty's Revenue & Customs (HMRC), allows
companies to deduct intellectual property fees if firms can show the charges were
made at "arm's length" - that is, if companies can show they would have agreed
on the terms even if they were not connected.
One way to prove this is to show that a license for which a royalty is paid is key to
the subsidiary's profitability, said Stella Amiss, international tax partner with
accountancy firm PwC. After all, if you are paying for an asset that never
generates a profit, you are probably paying too much. "You would need to show a
track record of profitability," she said.
Starbucks says it abides by the arm's length' principle, even if the company has
not been profitable in the UK.
Accounts for McDonald's UK unit show it also pays trademark fees to associated
companies, but these have generated profit. A spokeswoman for KFC said its UK
unit did not pay such fees.
Accounting firm Deloitte, which audits both Starbucks' group accounts and those
of the UK unit, declined to comment.
BEAN COUNTER
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The second factor for the contradiction between Starbucks' local accounts and its
comments to investors is a requirement to allocate some funds generated in the
UK to other subsidiaries in its supply chain. "The profit sits where the value is
created. That is a principle we subscribe to," Starbucks CFO Alstead said.
Starbucks buys coffee beans for the UK through a Lausanne, Switzerland-based
firm, Starbucks Coffee Trading Co. Before the beans reach the UK they are
roasted at a subsidiary which is based in Amsterdam but separate from the
European HQ.
Alstead said that tax authorities in the Netherlands and Switzerland require
Starbucks to allocate some profits from its UK sales to its Dutch roasting and
Swiss trading units. This is a common requirement, which multinationals meet
by setting prices, known as a "transfer prices", for goods that pass between
different group entities. Experts say transfer prices are also a way for a company
to minimize its tax bill.
It's not clear how Starbucks allocates such costs. What is clear is that while its
UK subsidiary is making a loss, its Dutch roasting operation has only a small
profit. In the past three years, the Amsterdam unit has had an average annual
turnover of 154 million euros but recorded average profit of 1.6 million euros, or
1 percent of that, according to its accounts.
On average, 84 percent of the Amsterdam unit's annual revenue has gone on
buying goods such as raw coffee beans, the electricity to roast them, and
packaging.
Starbucks declined to give details, or comment on what the charges indicate
about the price its roaster paid its Swiss unit for coffee beans. It also declined to
say what profit the Swiss coffee-buying unit makes, although Alstead said it was
"moderately" profitable. Swiss law does not require the unit to publish accounts.
Corporate profits are taxed at 24 percent in the UK and 25 percent in the
Netherlands, whereas profits tied to international trade in commodities like
coffee are taxed at rates as low as 5 percent in Switzerland, lawyers there say.
Starbucks was the subject of a UK customs inquiry in 2009 and 2010 into the
company's transfer pricing practices. This was "resolved without recourse to any
further action or penalty", a Starbucks spokesman said. HMRC declined to
comment on the probe.
144
A CASH-RICH BORROWER
Starbucks' UK accounts show a third way it cuts its tax: inter-company loans.
These are a common tactic for shifting profits to low-tax jurisdictions, according
to a guidance manual used by the UK tax authorities, who try to limit the
technique.
Such loans bring a double tax benefit to multinationals: the borrower can set any
interest paid against taxable income, and the creditor can be based in a place
that doesn't tax interest.
An examination of its accounts shows that Starbucks' UK unit is entirely funded
by debt, and paid group companies 2 million pounds in interest last year. For
comparison, McDonald's UK - which has 465 more branches than Starbucks paid only 1 million pounds in interest to its group companies last year.
Starbucks hardly cuts its UK subsidiary a good deal. Its group bonds carry a
coupon of Libor plus 1.3 percent. Libor, the London Inter-Bank Offered Rate, is
an international interest rate benchmark frequently used in commercial lending.
Starbucks charges its UK unit interest at Libor plus 4 percentage points. For
comparison, KFC charges its subsidiaries around Libor plus 2 percentage points
and the UK units of McDonald's pay affiliates interest at or below the Libor rate.
145
Appendix 21
146
Appendix 22
Google's Segmented Sales

40,000,000
35,000,000
30,000,000
25,000,000
Sales ($000)
20,000,000
Sales (US)
Sales (UK)
Sales (INT)
Total Sales
15,000,000
10,000,000
5,000,000
-
147
148
Appendix 23
Google's Comparitive of Total Sales, Profit before T

2011
2010
2009
2008
Year
2007
2006
2005
2004
2003
-
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
$000
Total Sales
Total Tax Paid
149
30,000
Appendix 24
150
Appendix 25
151

Ben Zuccolini - s1101113 - Dissertation

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TAX EVASION OR AVOIDANCE: THE MEDIAS ROLE

Ben Anthony Zuccolini

Presented as part of the requirement for an award within the Undergraduate

Ben Anthony Zuccolini

Word Count 10,682 (excluding references and appendices)

Ben Anthony Zuccolini

Taxation affects everybody in the UK and is paid on everything that is

3.8 Limitations of the Secondary Data........................................................29

Figure 1 - Tax Gap in the UK..........................................................................18

1.1 Aim & Objectives

Critically evaluate media representations of companys tax evasion;

Analyse academic literature related to tax evading and tax avoiding;

Analyse case study company accounts to determine if there is

The aim and objectives lead to three specific research questions:

To what extent does the literature differentiate between tax evading

Do companys accounts provide evidence for tax evasion or tax

1.2 Rationale for study

1.3 Dissertation structure

Chapter 2 - Literature Review

be justified on ethical grounds in certain circumstances. In some cases

courts to impose a tax liability when none was anticipated by Parliament

There must be a tax advantage gained by activities

Obtaining this tax advantage must be the main purpose or one

The activities undertaken must be abusive (International Tax

Unfortunately, for many cases it is completely down to HMRC to prove all

multinationals to want to do business. This would have a detrimental effect

their returns on time when required to do so; Underreporting takes place

Schroff (2012) supported this theory as 69 per cent of executives surveyed

Chapter 3 - Methodology and Methods

choosing a research area, it is thought that because taxation affects

accounting journals use predominately positivist methodological perspectives

Source: Kumar (2012:12)

Media analysis can be used to identify messages, examine how those

3.2 Data Collection Methods

Figure 3 - Types of Secondary Data

The provision of a set of arid principles which may bear

little relation to the actual research project;

Chapter 4 - Data & data Analysis

The main companies that this dissertation focuses on appear frequently in

4.3 Tax Evasion

4.4 Tax Havens

Figure 4 - Investments in Small International Financial Centres

Source: Lane & Milesi-Ferretti, (2010:2) as cited in the Economist (2013)

4.5 Tax Gap

4.6 Case Study

4.6.1 Google Inc.

thinking that the 6m paid in tax would be on the revenue; however,

Amazon's Sales, Profit before Tax, Total Tax Paid

2003 2004 2005 2006 2007 2008 2009 2010 2011

Total Profit before Tax

Total Tax Paid

4.6.3 Starbucks Corporation

authorities (House of Commons Committee of Public Accounts, 2012);

Starbucks Comparitive of Total Sales, Profit before

Total Profit before Tax

Total Tax they are Paying

are generated in the US as it is under North America. They generated 55.5

Critically evaluate medias representation of companys tax

The medias representation of companys tax evading was evaluated and as

should be paid by the companies are an estimation based on the data

Amazon.com, Inc. (2006). Amazon.com 2006 Annual Report. Amazon.com, Inc.

Campbell, P. (2013). Corporate tax avoidance 2013: following the Starbucks