The UK's tax authority, HMRC, has been accused by leading tax campaigners of redefining tax avoidance to exclude technology giants such as Google, Facebook, and Amazon.
Experts and campaigners, including the leading tax barrister Jolyon Maugham QC and Trades Union Congress general secretary Frances O'Grady, criticised a policy paper issued by HMRC on Wednesday that appeared to describe a controversial practice of using overseas companies to make UK sales as "not tax avoidance" but "simply the way that Corporation Tax works".
The row is the latest eruption in a long-running series of UK controversies about how tax authorities handle Google and Amazon. A recent deal saw Google and HMRC settle a long-running corporate tax dispute over stock options with a £130 million settlement, which led to media and political backlash. The influential public accounts committee of MPs, which oversees HMRC, said the deal "seemed disproportionately small" when compared to revenue Google generates from the UK.
Amazon, meanwhile, has faced scrutiny for its complex Luxembourg-based corporate structures and modest UK corporation tax payments.
The latest argument centres on a widespread and entirely legal practice carried out by many major internet firms, including Google and Amazon, whereby sales to UK customers aren't logged by their UK businesses.
When a UK customer buys, say, a book from Amazon, they actually buy it from Amazon EU S.a.r.L. – which is based in Luxembourg. Amazon UK receives a fee for processing and distribution for dispatching the delivery, meaning most of the revenue (and any profit) would not be held by the UK company. As the UK company doesn't make much (if any) profit, it therefore doesn't pay much (if any) UK tax.
This practice, though legal and widespread, has long been condemned as unfair by tax campaigners, as well as some small business associations. UK-based sellers argue that as they need to pay corporation tax they can't compete effectively on price.
The new row has broken out over whether or not the practice can be called tax avoidance.
By dismissing the practice as "how corporation tax works", HMRC rendered the term meaningless, according to Jolyon Maugham.
"The most glaring of [the problems with HMRC's statement] is that it has as its consequence that there is no such thing as tax avoidance," he argued on his blog. "If the structure works it's not tax avoidance. And if the structure doesn't work, by definition it doesn't avoid tax, and so it can't be tax avoidance either."
Maugham said the new definition also contradicted how HMRC itself calculates the "tax gap", a measure of the difference between how much tax the UK economy could generate and how much it actually does, due to legal tax avoidance and illegal tax evasion.
"But the most extraordinary thing of all is that HMRC is going out of its way to provide political cover for businesses which engage in abusive tax practice," he wrote.
"Where is the public interest in HMRC saying, publicly, that it is not avoidance for businesses to establish with a view to minimising their tax liability these highly artificial structures?
"Why on earth is HMRC acting as public relations agency for Google, or Facebook, or Amazon?"
Maugham's view was echoed by the general secretary of the TUC, Frances O'Grady, the UK's most senior trade union official.
"It's hard to have confidence in this decision when the government has been so widely criticised for making 'sweetheart' tax deals with big corporations," she told BuzzFeed News. "We need much greater transparency on the tax payments of companies like Amazon and Google. And the government needs to toughen up tax rules on 'offshoring' and enforce them properly."
Richard Murphy, an accountant who helped advise Jeremy Corbyn during his leadership campaign, said the paper "fundamentally undermines" HMRC claims to crack down on tax avoidance.
"This is a new departure by HMRC," he told BuzzFeed News, "basically meaning that they deny the existence of tax avoidance as it has long been defined and fundamentally undermine their claim to measure the tax gap in any effective way.
"The result is that public confidence in HMRC is bound to be undermined yet again, and all because it seems they want to go out of their way to defend tax-avoiding companies."
A spokesman for HMRC, however, defended the policy paper, saying it merely restated longstanding policy by the agency.
"We are simply stating that under tax law, companies within a group are taxed independently on the profits from their economic activities and assets," he said. "This is entirely in line with international standards and does not impact on our determination to tackle artificial tax avoidance structures. It is only right that HMRC explains the basis on which profits are taxed, particularly where there is keen public interest."