eBay, “World’s Online Marketplace” as it calls itself, and Furniture giant Ikea, have followed the Starbucks route in evading corporation tax through cleverly manipulated accounting techniques which allow them to tweak and reduce their tax bills.
eBay UK evaded £50 million corporation tax bill in Britain through legitimate channelling of payments through Luxembourg and Switzerland. eBay UK arm paid just a little over £1 million towards corporation tax in Britain, despite generating sales of almost £800 million in the UK.
According to an investigation by The Sunday Times, using a group-wide profit margin of 23%, eBay’s UK profits would have been £181 million in 2010, which would have resulted in a corporation tax bill of £51 million. But, the total amount of tax paid by eBay’s four main UK-based subsidiaries for that year was £1.2 million.
eBay UK has structured its accounting techniques in such a way that allows it to dramatically reduce its UK tax liability. eBay UK directed its sellers to step up the fees in Britain and are handed over to a related company in Luxembourg called PayPal (Europe) Sarl, which means that most sales are channelled through a tax haven.
Furniture chain Ikea paid £8.1 million corporation tax in the year to August 2011, on sales of almost £1.2 billion, with profits of £23.6 million. An investigation into its tax paying habits revealed that Ikea uses a legal accounting trick to lower profits in Britain, by paying a royalty of 3% to a separate company based in Holland. the fee allows the Holland company to use Ikea’s furniture designs and its trademark.
In 2010-11, Ikea’s profits in Britain were reduced by £35.7 million by the fee, meaning that the tax authority did not receive £9.7 million in corporation tax, which it otherwise would have from Ikea’s UK subsidiary.