eBay avoids £50m corporation tax bill by channelling payments through Luxembourg

| October 21, 2012 | 0 Comments

  • eBay generates sales of more than £800million a year in Britain – but paid only a little over £1million in corporation tax in the country
  • The online auction firm legally channels payments through Luxembourg and Switzerland to avoid paying nearly £50m in tax in Britain
  • Furniture firm Ikea has cut its UK corporation tax bill by half thanks to elaborate – and legal – accounting methods
  • News comes after it emerged coffee giant Starbucks has paid no tax in the UK in the past three years

By
Kerry Mcdermott

07:43 EST, 21 October 2012


|

11:19 EST, 21 October 2012

The online auction site eBay shaved almost £50million from its corporation tax bill in Britain by legally channelling payments through Luxembourg and Switzerland, it has emerged.

The U.S. firm paid just a little over £1million in tax in Britain – despite generating sales of almost £800million in this country.

Meanwhile Swedish furniture firm Ikea cut its UK tax bill by half by siphoning off profits overseas in the form of royalty payments to a sister company, it has been found.

eBAY has said its European arm complies fully with all applicable tax laws and regimes

Headquarters: eBAY has said its European arm complies fully with all applicable tax laws and regimes

The news comes after it emerged coffee giant Starbucks has paid no tax in the UK in the past three years.

The coffee chain has used loopholes in order to pay just £8.6million in tax in 14 years of trading in Britain – during which time it has raked in over £3billion in revenues.

Foreign firms’ use of savvy accounting techniques to legally avoid paying tax in Britain has provoked fury among politicians and consumers.

eBay, the world’s largest online marketplace, is structured in a way that allows it to dramatically reduce its UK tax liability.

Furniture giant Ikea paid £8.1million in corporation tax on sales of almost £1.2billion and profits of £23.6million

Furniture giant Ikea paid £8.1million in corporation tax on sales of almost £1.2billion and profits of £23.6million

According to an investigation by The Sunday Times, using a group-wide profit margin of 23 per cent, eBay’s UK profits would have been £181million in 2010. At the time this would have resulted in a corporation tax bill of £51million.

But the total amount of tax paid by the firm’s four main UK-based subsidiaries for that year was £1.2million.

This is partially down to the fact
that fees stumped up by eBay sellers in Britain are handed over to a
related company in Luxembourg called PayPal (Europe) Sarl, meaning most
sales are channelled through a tax haven.

Other U.S. firms including Facebook and Google are known to use similarly complex methods of moving money out of Britain and into countries with lower tax rates.

Furniture chain Ikea paid £8.1million corporation tax in the year to August 2011, on sales of almost £1.2billion and profits of £23.6million.

The investigation found the firm uses a legal accounting trick to lower profits in Britain, by way of paying a three per cent ‘franchise fee’ to a separate company based in Holland.

The fee covers the right to use Ikea’s furniture designs and its trademark.

In 2010-11 Ikea’s profits in Britain were reduced by £35.7million by the fee, meaning the exchequer did not receive £9.7million in corporation tax it otherwise would have from Ikea’s UK subsidiary.

The fee was paid to Inter Ikea Systems BV in Holland, which is controlled by another firm based in tax haven Liechtenstein.

The Public Accounts Committee are set to question the head of HM Revenue Customs over the kinds of methods being used by foreign firms to legally avoid paying UK tax at a parliamentary hearing next month.

Starbucks – the second largest restaurant or cafe chain in the world after McDonald’s – has recorded losses in Britain while telling investors the UK market is profitable.

It is now facing a backlash after thousands of outraged customers pledged to boycott its branches after learning of the host of complicated measures Starbucks employs to legally avoid paying tax in Britain.

A spokesman for eBay said:
‘eBay Inc in Europe works with tax authorities and complies fully with
all applicable tax laws and regimes – including national and
internationally recognised rules.’

An Ikea spokesman told the Sunday Times: ‘There is a 3% franchise fee on Ikea sales worldwide. Tax authorities in the Netherlands have consistently confirmed that Inter Ikea Systems BV is the beneficial owner of the Ikea retail system and the franchise fee income.’

Boycott: Thousands of customers have pledged to stop visiting Starbucks after it emerged the chain has not paid corporation tax in Britain in three years

Boycott: Thousands of customers have pledged to stop visiting Starbucks after it emerged the chain has not paid corporation tax in Britain in three years

Starbucks, which has to pay VAT on in-store hot drinks, has said it continues to pay its ‘fair share’ in taxes in full compliance with all UK tax laws.

‘There has been no suggestion by any authority that we are anything but compliant and good tax payers,’ the chain has said.

The comments below have been moderated in advance.

And they will probably claim operating losses to be even further exempt from paying tax as some others do. I guess google does oil the wheels of the economy though, but then if everyone else has to pay tax for the privelege of making money in this country then so should they.

Jetty
,

London, United Kingdom,
21/10/2012 15:04

We each have the power to vote with our feet and stop using stores or services who do not pay their share!

We can stop this
,

Uk,
21/10/2012 15:03

HMRC – CHANGE THE RULES!

Fred
,

Colony of EUSSR, United Kingdom,
21/10/2012 15:02

If the greedy Government reduced tax these companies would pay it all, then we would benefit from this tax actually being paid to the UK, in some cases less IS more…..but our glutonous MP’s would rather put prices up and up,so the companies just move money or pay taxes elsewhere, the poor old little people just pay as usual. Why would our government care, they are getting everything free with expenses, a decent wage for sleeping in the house of commons and free spending money from letting out the houses we bought for them, then at the same time they claim rent to live elsewhere……and they have the nerve to point fingers.

AnneJ
,

England UKIP,
21/10/2012 15:00

The government need to close these legal loopholes now. No multimillion pound investigations, no inquiries. Slam the door in their faces. By the way does anyone know of a way that I can legal avoid all the taxes heaped upon those of us that work for a living? Council tax, income tax, car tax, value added tax, utility taxes 5%, all those stealth taxes etc etc. Because I for one am fed up of subsidising all and sundry.

FIzz0527
,

Oxford, United Kingdom,
21/10/2012 14:58

Can you blame ebay really with this government?

jacobj
,

Birmingham UK,
21/10/2012 14:56

All perfectly legal. But immoral. Isn’t this what parliament is for, to make laws to stop this kind of thing? What are the numpties waiting for? Is no one in charge? Can no one make a decision?

Bob Scott
,

Sunny Surrey,
21/10/2012 14:56

Its simple ban all companies that use these techniques from franchising in Britain. There will be laws that already exist on franchising that can amended. Its only legal till you make it illegal.
There is no real need for cuts the deficit is created because of the £billions leaving the country every day from these corrupt companies. The governments are never quick of the mark there still stuck in a British company’s owned by the British citizens in Britain with British workers who all pay there tax mentality.
Its no wonder these franchises are taking over when they don’t have overheads like tax to worry about.
So if they cant deal with simple things like this how can they hope to deal with online shops that dont physically exist.

maildog1
,

warrington, United Kingdom,
21/10/2012 14:55

so what are the Inland Revenue going to do about all these legal loopholes – Nothing perhaps?!…

Shaz
,

Reading,
21/10/2012 14:53

What did David Cameron and George Osborne do? In the budget announced a new task force to tackle tax evasion and avoidance and privately told them to focus on car boot sale sellers and eBay users. Again, going after the middle class and poor and ignoring where they could easily get substantially more money paid in taxes.

StevieWebb
,

Truro,
21/10/2012 14:39

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