eBay, Ikea follow Starbucks in tax evasion scandal

Written on:October 22, 2012
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eBay properties

“Whatever it is, you can get it on eBay”…but can you make it pay its taxes honestly?

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.

Related:
Spilling the beans: Starbucks sales tax evasion scandal report

     

6 Comments add one

  1. Nelson says:

    I can’t understand how these so-called legal techniques work. Such loopholes are making a joke out of the government.

  2. Rod the sod 53 says:

    I wonder why the companies don’t offer the same accounting services to their own staf? In this way they could also avoid giving pay rises for some considerable time. Could it be that failure of the populace to pay income tax would mean an end to the welfare state to the National Health service to the Police to free education to libraries to environmental protection and ultimately to Ikea Starbucks and Britain itself?

  3. Simon says:

    Bottom Line: Tax evasion should be considered a criminal offense with guaranteed 1 year MINIMUM imprisonment for CEOs / Top Management, along with hefty company fines.

    Bankers and MPs found to have willingly tried to evade tax should be imprisoned too. This change can be funded by some of the income generated from their charges, leaving the remaining income to flow back into the economy.

    It would appear to be an ongoing massive failure of our government in not dealing with these issues over the past decades. I’m on the lookout for a new “average joe” political party, who have picked up realistic, and preferably more intelligent individuals at random to represent the country. Start one, and you get my vote, and I imagine many more. Pick up candidates and awareness via social networking ;)

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