Linkedin ......a great help for tax authorities

That was interesting news this week. In an attempt to find proof that Amazon UK undertakes more activities in the UK than they claim, HMRC  (Her Majesty's Revenue and Customs)  checked out Linkedin profiles of Amazon UK employees. About 140 profiles were checked. And we all know why a lot of people have Linkedin profiles, they want to be attractive to headhunters and new employers. So what do they do...they pimp up their profile. This can now hurt Amazon UK. Amazon UK employed more than 4000 employees in the UK who all performed auxiliairy activities, according to Amazon. The Linkedin profiles told a different story, a lot of Amazon UK employees did contribute significantly to the UK profits of Amazon. Over the last six years Amazon reported in total $23 billion of sales in the UK. They paid in total $9 million of Corporate Income Tax to the Inland Revenue. Is that paying your fair share? 

HMRC also checked out the Corporate website of Amazon and looked at job adverts. It might be a good idea to have your tax department check all these pieces of information to see if there are no conflicts with the tax set- up. Every bit of information which is available on the net (don't forget Facebook, Twitter, Blogspot) can and will be checked by tax authorities. And why not? Free and accessible information up for grabs. 

Companies need to be aware that tax authorities know everything. We all know that former employees, certainly the ones who have been fired at some point, are good sources of information for tax authorities. An company cannot prevent employees stealing information and selling this to tax authorities.  Social media can be an ally of tax authorities. An company cannot prevent employees using Linkedin, Facebook or Twitter. Companies need to be aware of that fact and check what is happening. The Amazon UK case proves this might be the smart thing to do.

Automatic exchange of information.

Trending topic in the tax world today- automatic exchange of information. Luxembourg and Austria are under siege. Luxembourg wisely threw the towl in the ring. Austria tries to resist, but it is hopeless. 

On the surface it looks like common sense to automatically exchange information. However, there is a downside to this. If two states agree on the automatic exchange of information, and the agreement is published, no control whatsoever is applied on stream of information. The tap is running and no one is checking the water. Data of corporations and individuals are exchanged and no one can and will check if the data is correct. So if a local tax official makes a mistake and includes - for example - the wrong group of people into the automatic flow of information, no one can do anything about this. The individual taxpayer cannot appeal, has no rights whatsoever.

Is it all worth it? I mean, one could argue that the rights individual taxpayers are less important than the rights of the EU. The EU is entitled to fair tax revenues. Yes, a lot of taxes are evaded, but then again, often based on legal frameworks (like tax treaties). EU member states concluded tax treaties with a purpose, namely to stimulate trade. The UK now officially announced they want to attract many more companies to the UK. Only one way they can do that, namely introducing favourable tax regimes.

Smaller countries like Belgium, The Netherlands and Luxembourg were forced to do that many years ago. That is the only way for small countries to attract business. Big countries like the UK, France and Germany did not feel that need because they already have a lot of multinationals within their borders.  But because of the worldwide financial crisis we are in right now, the rules have changed and big countries (like the UK) will also actively promote favourable tax regimes.

From that perspective it is politically easy to divert the attention to individuals and corporations in stead of addressing the root cause namely the fact that we do not have a harmonised tax system in the EU. That is what European policitians really should focus on. 

Tax revolution in the UK. Starbucks revisited.

Starbucks is voluntarily paying more taxes than they should in the UK because of political pressure. Political pressure companies can usually handle, except if it leads to loss in revenue. In the case of Starbucks it was obvious; UK customers avoided the US coffee shops and started to drink their coffee in English coffee shops. That hurts. The Politicians were double successful in attacking Starbucks; they received additional tax revenues and excercised protectionisme without anyone objecting. Except for Starbucks obviously.

What did Starbucks do? They established a Dutch company that owned the Starbucks trademark probably for all non-US coffee shops. This can be achieved multiple ways, because the trademark is a US trademark. Either the Dutch company paid for the use of the trademark by means of a one time payment, or they have to pay an annaul license fee to the US owner of Starbucks. The IRS likely attacked this structure and demanded either a higher payment from the Dutch company (leading to US taxation ) or a higher lincense percentage or annual payment to the US Starbucks trademark owner. In both scenarios the IRS would benefit.

The result of this set-up is that the UK Starbucks coffee shops need to pay the Dutch company for the use of the Starbucks trademark in the UK. That HRMC feels that Starbucks is not paying enough UK corporate income tax is cynical, because the UK concluded many tax treaties including a treaty with The Netherlands. Starbucks applied the tax treaty and if the UK do not agree with the consequences of the application of this treaty they should renegotiate the treaty. What they did now is bypassing treaty law and abusing internationally agreed tax principles.