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No easy fix for Amazon, Google, Apple tax fracas

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If the U.K. Parliament's public accounts committee achieves nothing else in its investigation of multinational tax affairs, it will at least have punctured the corporate ego of Google Inc., perhaps the world's most pompous company. Margaret Hodge, the chairman of the committee, threw the Internet company's moralising slogan "Don't be evil" into the face of Google's European sales boss, accusing the company of devious, calculated and unethical behaviour. "I think that you do do evil," she pronounced last week.

Unfortunately, for Ms. Hodge, this may be as much satisfaction as she (and we) are likely to get from Amazon.com Inc., Google, Apple Inc. and any of the corporate colossi that are now being carpeted for their clever manipulation of tax avoidance rules. These were not devised in a digital age when the locus of a sale could be anytime, anyplace, anywhere. The rumpus over multinational taxation erupted again on Wednesday last week when Amazon filed its U.K. accounts which revealed the company paid £3.2-million ($5-million) in taxes last year while it told investors that its U.K. sales were more than £4-billion. Meanwhile, Amazon's suppliers have been supplying a steady drip-feed of commentary, telling the U.K. press about their extensive negotiations with purchasing and marketing staff in the U.K. while Google, Amazon and Apple insist that their U.K. sales (and in Apple's case, several other activities, as a U.S. Senate report recently observed) are invoiced from low-corporate tax jurisdictions such as Ireland or Luxembourg.

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When you click on an Internet retail site you may know with whom you are doing business but do you know where they are? For tax purposes it may not matter that you clicked on kitchenappliance.ca and that your toaster was bubble-wrapped, packed and posted by Canadian staff from an order fulfillment warehouse in Toronto. If the invoice was issued in Delaware or the Cayman Islands, that is where tax will be paid, or not as the case may be.

Back in the U.K., the prime minister, David Cameron has written to 10 U.K. tax havens, urging them to sign international protocols for sharing tax information. These include the Cayman Islands, the Isle of Man, Jersey and Guernsey. However, I seriously doubt they will make much headway. The problems are immense. It is not just a few happy islands that are hosting tax avoidance but countries, such as Ireland, the Netherlands and Luxembourg, not to mention the American state of Delaware, which have become major corporate tax havens.

Even if the G8 could agree in principle to reform avoidance rules at the international level, agreement in practice would become a nightmare of complexity and policy difficulty. For example, in a product sale involving multiple countries of manufacture, design and marketing, where is the lion's share of the profit earned and subject to tax? Is it the country that invoices or the country that makes the product or the one that designed it or the country where the buyer is located? Poor countries want the bulk of the profit to stay with them so they can tax it, but is that fair to an American or European corporation that has built up a brand through decades of marketing investment?

It's all about who gets the biggest slice of pie. While nations squabble, companies duck and dive to keep more for their stockholders. Corporate greed is no longer good, but the avarice of governments is still legitimate.

Carl Mortished is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights.

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About the Author

Carl Mortished is a Canadian financial journalist and freelance consultant based in the U.K. With a career spanning investment banking, journalism and consulting for global companies, he was for many years a financial writer and columnist for The Times of London. More

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