eBay's tax arrangement costs Britain and Germany $1bn

By Danny Palmer
03 Dec 2012 View Comments
tax

Auction site eBay's tax arrangements may have cost Britain and Germany a combined total of $1 billion since its Luxembourg office became base for European sales. This move is one politicians and tax authorities say should be examined.

The office only has nine employees, but eBay Europe Sarl is named as the online retailers' EU base to allow it to charge customers a low rate of VAT. Under European Union rules, an organisation can use affiliates in Luxembourg to take advantage of the nation's low rates.

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However, the Luxembourg unit doesn't see a penny of sales, as the firm moves revenues through an office in Berne, Switzerland, thus allowing it to take advantage of the lowest corporate tax rate in Europe.

For eBay, this could result in an investigation from EU tax authorities, which can challenge claims to Luxembourg residence and the benefits it brings if there's reason to believe the base doesn't have the resources to be the supplier of goods and services. This is almost certainly the case with eBay's nine-person Luxembourg operation.

The UK and Germany are keen to see eBay's tax affairs investigated by their own authorities, as they could be costing both countries hundreds of millions in revenue.

"I hope that HMRC takes note...and takes prompt action," said Margaret Hodge MP, chairman of Parliament's Public Accounts Committee.

"I will be seeking assurance that they are, next time we take evidence from HMRC," she added.

But Chis Puttick, co-founder of online guidance and protection service for children TwoTen, told Computing that big firms are obliged to maximise returns for their shareholders.

"A company listed on a stock exchange is bound by various laws and regulations," he said.

"One of those, which is more or less universal on all stock exchanges, is the requirement to return maximum value to the shareholders. That means in effect that a company is bound by law to pay the least tax it legally can.

"Tax avoidance is not evasion; as far as listed companies go, one is against the law the other is required by it," he added.

eBay isn't the only tech firm that has been accused of paying less tax that it should, with Apple and Google, companies which earn billions of pounds of revenue each quarter, using loopholes to avoid paying tax.

Meanwhile, Australia recently announced it would be cracking down on tax practices used by big firms to avoid paying millions. However, tax experts argue that the proposed changes would deter businesses from investing in the country.

"What is starting to happen is that Australia is being increasingly seen as a high sovereign risk country on taxes," said Paul Stacey, a tax counsel at the Institute of Chartered Accountants.

"This review will only increase that perception," he added.

Back in Britain, chief secretary to the Treasury Danny Alexander has ruled out the naming and shaming of firms that pay little or no corporation tax. He said such an approach would breach taxpayer confidentiality.

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