Google, Amazon May Face New Hurdle In U.K.

Will Google, Amazon and other U.S. IT companies be shut out of U.K. government contracts after bragging about tax avoidance?
The Sunday Times claimed over the weekend to have advance notice of what could be a significant about-face by the U.K. government: shutting out international contractors that aren't paying their full share of tax on profits.

In something of an ironic twist on "No taxation without representation," the cost-conscious U.K. government is set to announce that corporations that avoid paying what the story calls their "fair share of tax" will be "barred" from "lucrative contracts with" the U.K. government.

That could be bad news for a range of often U.S.-headquartered technology firms. Many have become the targets of bad PR in Europe for claiming their local operations don't make money, but which critics say benefit from opaque reporting structures that offshore euros and pounds back to their American shareholders. For instance, the Sunday Times said it was first last year to reveal that tech consulting giant Accenture paid zero U.K. corporation tax in 2010 and 2011, despite making profits on paper of $282 million (£180 million) from U.K. work, including, ironically enough, for the U.K. taxman -- Her Majesty's Revenue & Customs (HMRC).

[ Want to know how government could help balance the budget with IT? See Virtual Desktops Could Cut U.K. Government Costs. ]

The two biggest targets have been Google and Amazon. Consider Google's former chair Eric Schmidt's December declaration that he was "proud" of his company's success in evading revenue collectors. ("It's just capitalism," he said.) Last November, Starbucks, Google and Amazon faced stiff questioning from U.K. members of Parliament about their fiscal "repatriation" strategies. Starbucks has claimed that in the 15 years it has operated in Great Britain it has paid only $13.3 million (£8.5 million) in corporation tax, despite total local sales of $4.7 billion (£3 billion). This was believed to be behind prime minister David Cameron's barely concealed threat at the World Economic Forum in January that overseas companies not paying local tax will have to "wake up and smell the coffee."

The flavor of that coffee may be revealed this week: the Sunday Times story, claiming inside information, said Cabinet office secretary Francis Maude will announce that new rules are set for introduction that will force bidders for government work to disclose their tax compliance history.

The central government spends an average of $24 billion (£15 billion) on information and communications technology (ICT), out of its $66 billion (£42 billion) total annual spend on external suppliers. This could mean headaches for IT firms who have been particularly nimble with moving money around European subsidiaries to minimize their tax bills.

It's too early to see exactly what, if anything, Maude and his team of procurement gurus will come up with. But it seems there have been too many headlines about tax-dodging suppliers for Her Majesty's Government to stop doing nothing about tightening up its purchasing rules.

Update: Accenture provided the following statement after this story was published: "Accenture reports all of its revenues earned within the U.K. and pays taxes on the profits earned within the U.K. We take our responsibilities as a U.K. taxpayer seriously and pay tax on our U.K. profits as required by U.K. laws. Not only does our tax structure comply with U.K. tax law but we believe we take a conservative view of the tax law. We are confident that our tax filings are compliant, transparent and appropriate."

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