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Parliament's judgement on Starbucks and Amazon: 'Outrageous and immoral'

Inland Revenue should be doing more to tackle aggressive tax avoidance which is costing the UK billions of pounds, according to a report published today.

Massive global corporations are not paying their 'fair share' and HMRC is not doing enough to tackle the issue said the public accounts select committee, which published its findings today.

"Global companies with huge operations in the UK generating significant amounts of income are getting away with paying little or no corporation tax here," said committee chair Margaret Hodge. 

"This is outrageous and an insult to British businesses and individuals who pay their fair share.

"There is little credible information about what is going on. The evidence we took from large corporations was unconvincing and, in some cases, evasive. HMRC also lacked clarity when trying to explain its approach to enforcing the corporation tax regime."

Representatives from Google, Amazon and Starbucks all faced a grilling from the committee's panel earlier this month.

At one point Andrew Cecil, Amazon's representative, was laughed at and ridiculed by the panel, with Hodge telling him: "They've sent you up as I don't know what. You're not serious. It's outrageous."

Starbucks has faced major criticism for its tax policy as the company has paid just £8.5 million in corporation tax since 1998, despite a turnover of £3 billion in its UK coffee shops.

It does this by buying all its coffee from the company's Swiss operation at a mark up of 20% - effectively wiping out the profit of its UK arm, meaning it pays little or no tax here.

The rate of corporation tax in Switzerland is just 8.5%, compared to 24% in the UK (though this is set to fall to 23% next year).

But Hodge herself has had to face questions over the tax arrangements of steel giant Stemcor, a company set up by her father. Hodge owns shares with a total value of around £1.8 million.

Conservative MP Priti Patel wrote a letter to Hodge, published in the Daily Telegraph, asking her to explain her involvement.

The company have been accused of using a policy of 'transfer pricing'. Similar to the mechanism used by Starbucks it involves large international money transfers within the company, but Stemcor have vehemently denied that this equates to tax avoidance.

A statement on the company's website said: "Over the past five years Stemcor has paid £27 million in UK corporation tax, an effective tax rate of 32% based on UK generated profits. This compares to an average corporate tax rate in the UK for the same period of 28%.
"A high turnover gives no indication of profit. Corporate tax is levied against profits, not turnover. As a trading company, Stemcor's profits tend to be only around one per cent of turnover and, in difficult economic conditions, profits are quickly eroded.

Tax avoidance is legal in the UK, unlike tax evasion, which is a criminal offense and often carries a custodial punishment. The government has promised to introduce a law against general tax avoidance, but it is unlikely to be ready in time for next week's autumn statement.