War against tax avoidance web giants goes European

British officials have been holding regular meetings in the past few weeks with their German and French counterparts to discuss how to stop giant web companies from avoiding tax, the Wall Street Journal reports.

Government officials are considering long-term changes in international tax standards. A case in point is a new interpretation of where economic activity takes place, which is considered to be an essential instrument to limit “tax shifting” and “profit stripping” techniques.

According to the newspaper, France, Germany and the UK pledged €150,000 each on Friday to speed up work on a set of tax proposals due in February from the Organization for Economic Cooperation and Development (OECD). The proposals come on the heels of the European Commission’s own recommendations.

The EU’s tax commissioner is expected to unveil early this month his proposals to curb the use of tax havens and other common methods of reducing corporate taxes.

International talks advance as Amazon, Google and Starbucks face public backlash and widespread criticism at home for using legal loopholes to avoid paying tax on British profits, as the UK struggles to plug its budget deficit and tackle its debt amid sluggish economic growth.

Starbucks announced it is in talks with UK tax authorities to pay tax.

The Commons’ Public Accounts Committee (PAC), the parliamentary spending watchdog, released on Monday a report accusing the three companies of “immoral” conduct and calling on the government to draw up laws to make them pay their fair share of tax.

Speaking to the BBC Radio 4, Margaret Hodge, the chair of the Committee, said that corporation tax was “in danger of becoming a voluntary tax” and expressed concern that HM Revenue and Customs had yet “to get a grip”.

Tax investigations are also heating up in other European countries. In Italy, authorities investigating Google have so far identified “signs of undeclared revenue of more than €240 million”, according to government officials.

French tax authorities have refused to identify any companies under investigation, but Amazon, Facebook, Google and Microsoft are believed to be under scrutiny, the WSJ reports. All the companies have said they are legal.

Google move its headquarters to Dublin, Ireland, four years ago.

Internet companies profiting from the virtual global economy are the main cause of concern for European Governments. “The problem is that our legal system hasn’t kept up with the virtual economy”, a French government official told the WST.

“Digital goods and services can be beamed from one country to another in an instant. But the virtual nature of these goods and payments can make it easier for companies to take advantage of the fractured international tax system”, the newspaper explains.

One of the pressing and controversial issues up on the table is Ireland’s tax legislation. Unlike most European countries, Irish law allows companies to shift their profits to low tax jurisdictions.

As a consequence, many Internet companies have established their headquarters in Ireland and channel the bulk of their European revenue through the country.