Business giants avoided £5.8billion in UK tax last year by shifting profits abroad and the figure is rising every year, it was revealed today.
HMRC’s own estimates reveal that £2billion more cash was shipped offshore by multinationals in the year to March 2017 – up 50 per cent in 12 months.
The £5.8billion bill comes from HMRC’s Large Business Directorate, which scrutinises the tax affairs of the UK’s 2,000 largest businesses.
The loophole has famously been used by online giants such as Amazon, Google, Apple and Facebook.
They have funnelled their European sales through countries including Ireland and Luxembourg where they were offered lower corporation tax rates in return for setting up headquarters there.
HMRC’s own estimates reveal that 50 per cent more cash than predicted was shipped offshore by multinationals in the year to March 2017 and it is rising every year
In 2015 George Osborne unveiled to so-called Google tax to clamp down on the practice, known as ‘transfer pricing’.
HMRC’s estimates of ‘tax under consideration’ is now at £5.8billion – up from £3.8billion in 2015/16. It now represents nearly a quarter of the £25billion total suspected amount of tax potentially underpaid.
Why does Amazon face back taxes?
Amazon faces an unpaid tax bill of £221.5million (250m euros) because its ‘sweetheart deal’ with Luxembourg amounted to state aid, says the EU.
The European Commission said the perks offered to the American retail giant amounted to ‘illegal tax benefits’.
Amazon paid just £15million in taxes on £19.5billion in sales across Europe last year, according to its most recent accounts.
Lawyers Pinsent Masons, who obtained the figures, suggest the estimates HMRC are becoming more aggressive about clamping down in the avoidance and ‘widening their net’.
Partner Ian Hyde said: ‘The tax affairs of the UK’s largest businesses are a top priority for HM Revenue & Customs, particularly the use of cross-border structures including the possible manipulation of pricing methods.
‘HMRC has been investing in transfer pricing specialists and this is clearly reflected in the figures.’
HMRC did not say if it was being more aggressive but a spokesman said: ‘Since 2010 HMRC has brought in over £53bn by effectively policing the tax rules as they apply to large businesses. This includes over £8bn from large businesses in 2016-17 alone.’
So far the UK has taken a softer approach with big businesses when compared to Brussels.
This month Amazon was ordered by the EU to pay £222million in overdue taxes which it evaded as part of an illegal deal with Luxembourg.
And Ireland was referred to the European Court of Justice for failing to collect Apple’s £11.5billion bill after a sweetheart deal with Dublin effectively let the US giant pay low taxes on its European profits.
Online retail giant Amazon is facing a bill of at least 250 million euros (£221.5 million) in back taxes after the European Commission ruled its tax affairs failed to comply with state aid rules
Brussels said this month that internet shopping giant Amazon failed to pay tax on more than three-quarters of its European profits for eight years.
The aggressive ruling is the latest attack on a US tech giant by the EU.
It also raises questions about the role of European Commission President, Jean-Claude Juncker, as he was Luxembourg’s prime minister and finance minister when the arrangement was agreed.
But, despite branding the deal illegal and without justification, officials refused to elaborate on his involvement.
Amazon has been told to pay an unpaid tax bill of £221.5million because its ‘sweetheart deal’ with Luxembourg amounted to state aid, EU Commissioner for Competition Margrethe Vestager revealed
The huge bill is the latest in a string of penalties against major US firms for abusing tax rules or exploiting their market dominance. It comes months after EU regulators ordered Google to pay £2billion and Apple was handed an unprecedented £11.5billion tax bill in August 2016.
Yesterday Margethe Vestager, the European Commissioner who led the investigations, said the Grand Duchy had offered Amazon ‘illegal tax benefits’.
A Luxembourg ruling in 2003 gave it a ‘selective economic advantage’ by allowing it to channel inflated payments through a shell company which paid no tax.
This let Amazon, which at this time funnelled its EU profits through Luxembourg, to pay four times less tax than local firms.
‘This is illegal under EU state aid rules,’ Miss Vestager said. ‘Member states cannot give selective tax benefits to multi-national groups that are not available to others.’
She denied accusations that US firms were being targeted, saying: ‘This is about competition, no matter your flag, no matter your ownership. Doing business in Europe is about paying your taxes.’
It is understood another EU inquiry into McDonald’s will conclude within weeks. ‘I don’t think we’ve changed the whole corporate culture yet,’ Miss Vestager warned.
The Amazon probe was launched in October 2014, weeks before Mr Juncker became president. He has repeatedly denied any wrongdoing in the so-called Luxleaks scandal in which hundreds of multi-national companies cut their tax payments via complex financing deals with his home country.
Amazon said: ‘Amazon did not receive any special treatment and paid tax in full accordance with Luxembourg and international law. We will consider our legal options’.