Most big U.S. tech groups slip European tax net

Tue Jul 23, 2013 5:00am EDT
 
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By Tom Bergin

LONDON, July 23 (Reuters) - Most big U.S. technology companies cut their tax bills by not declaring a tax residence in their main European markets, preventing tax authorities in those countries from even assessing their income, a Reuters analysis of hundreds of corporate filings shows.

Last week the Organisation for Economic Co-operation and Development (OECD) issued an action plan for tackling what it calls corporate tax avoidance. This has become a major political issue as citizens tire of paying higher taxes while companies often pay effective tax rates that are a fraction of statutory levels.

The OECD, which advises its mainly rich nation members on economic and tax policy, said it needed to assess how far companies in the digital economy use tactics like not creating a tax residence - or permanent establishment (PE) - in countries where they have major operations, to avoid paying tax where they do most of their business.

Business lobby groups such as the Business and Industry Advisory Committee, which focuses on the OECD, and Britain's CBI have questioned how far companies use such techniques, suggesting widely publicised avoidance by big names such as Apple, Google or Amazon might be the exception. "It is unclear how significant this issue is," the CBI said in an April submission to the OECD.

The Reuters examination (see) found that 37 of the top 50 U.S. tech companies don't have a tax residence in their biggest European markets for their main businesses.

There is no suggestion any of the techniques are illegal, and those companies which responded to requests for comment said they follow the tax rules in all countries where they operate. Some, including Microsoft which sells software to customers across Europe from Dublin, said their arrangements were driven primarily by a desire to effectively serve customers, rather than tax reasons.

Managers have an obligation to investors to use legal means to reduce their tax bill, said Chas Roy-Chowdhury, Head of Taxation at the Association of Chartered Certified Accountants. "Corporation tax is another cost to the business," he said.   Continued...