A Parliamentary committee will grill top executives from Amazon, Google and Starbucks on Monday about exactly how and why the companies have managed to pay appallingly low tax rates in the UK. The Public Accounts Committee in charge of the British government's financial affairs is particularly interested in Starbucks who paid no income tax and no corporate tax in the UK for the past three years. In fact, over the course of the 13 years that Starbucks has been slinging lattes on the British Isles, the company has paid just $13.74 million on $4.9 billion in revenue. That's just 2.8 percent. The corporate tax rate for everybody else is 24 percent. "It is hard for the ordinary person to believe it's fair," said Margaret Hodge, a member of parliament and chair of the PAC, told Reuters who first reported on Starbucks' lack of taxes last month. "It makes people incredibly angry in the current fiscal climate."
We already basically know how companies like Starbucks dodge taxes. They simply set up headquarters in Ireland or the Netherlands, two countries with uniquely low corporate tax rates and just route all of the cash through those offices. It's a strategy known as the "double Irish" or the "Dutch sandwich." Sometimes they even create separate companies for the sole purpose of bringing their taxes down. This gets them out of a lot of tax obligations in the United States, too. Just last week, we learned that Apple has perfected this method -- in fact, they helped invent it -- and paid just $713 million on its $36.8 billion in foreign earnings in the third quarter of this year.
It's unclear exactly what will happen after Monday's hearings, but this probably won't be the last time these major corporations have to answer for themselves in front of British lawmakers. According to Reuters, the UK and Germany last week "announced plans to push the Group of 20 economic powers to make multinational companies pay their 'fair share' of taxes following reports of large firms exploiting loopholes to avoid taxes." If the European companies crack down on the tax dodgers, it'll have big implications back home. A large number of American companies indulge in the double Irish and the Dutch sandwich. If they're cut off, they might just pick up and drop their foreign headquarters in another country that still sympathetic to tax-shy corporations. Well, the weather's better in the Caymans anyways.