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Western governments to tackle tech giants' tax-dodging

Western governments are set to target a range of tax loopholes used by technology giants including Apple, Amazon, Google and others, reports Reuters (opens in new tab).

The news agency has seen a draft document drawn up by the the Organisation for Economic Co-operation and Development (OECD), which has been charged by the G20 group of countries with drawing up measures that can stop big companies moving profits into tax havens.

Corporate tax avoidance schemes used by the likes of Google have already been slammed by MPs on the UK parliamentary Public Accounts Committee (PAC) in a report.

In the case of Google, a large chunk of UK sales and profits are booked through a registered office in Ireland even though those sales are generated in the UK.

As a result, Google has paid relatively small amounts of corporation tax in the UK, even though it is one of its biggest markets.

Margaret Hodge MP, chair of the Committee said, “Google generates enormous profits in the UK. But despite an $18 billion turnover between 2006 and 2011 it paid the equivalent of just $16 million in taxes to the UK government.

“Google brazenly argued before this committee that its tax arrangements in the UK are defensible and lawful. It claimed that its advertising sales take place in Ireland, not in the UK."

Hodge said, “This argument is deeply unconvincing and has been undermined by information from whistleblowers, including ex-employees of Google, who told us that UK based staff are engaged in selling. The staff in Ireland simply process the bills. Google also conceded that its engineers in the UK are contributing to product development.

“The company’s highly contrived tax arrangement has no purpose other than to enable the company to avoid UK corporation tax."

Hodge said Google's reputation had been "damaged" as a result, and that the damage will not be repaired until the company "arranges to pay its fair share of tax in the country where it earns the profits from the business it conducts".

In response, a Google spokesman said at the time, "It's clear from this report that the Public Accounts Committee wants to see international companies paying more tax where their customers are located, but that's not how the rules operate today."

Google maintains it broke no tax rules (opens in new tab) and did not break any UK laws in the way it presented its accounts.

Shortly before the PAC report was published, both Thames Water and Vodafone were slammed from various quarters for paying no or little corporation tax in recent years. The two firms said they had instead ploughed profits back into their business to improve services, in line with tax laws they were allowed to exploit.

According to Reuters, the OECD is now due to present an "action plan" highlighting areas where tax changes will be discussed at a G20 meeting of leaders later this month.

The preliminary draft Reuters has seen refers to "profit shifting" from one country to another. It says, "Domestic and international tax rules should be modified in order to more closely align the allocation of income with the economic activity that generates that income."

The draft plan aims for OECD members and non-OECD G20 members to agree on specific changes to international tax rules that can be applied in one to two years, said Reuters.

A US Senate Committee recently looked at the tax affairs of both Apple and Microsoft. It found Apple had created companies which were registered in Ireland and managed from the US, thereby qualifying as being "tax resident nowhere", enabling the company to shelter billions of dollars of sales from tax.

Microsoft reduces its tax bill by allocating profits to "tax haven" units on the basis these units fund research, or bear business risks related to transactions elsewhere in the group. Microsoft allocates profits derived from research conducted in the US to a unit in Ireland.

Both areas are said to be in the sights of the OECD, which wouldn't comment on the draft document.