Base Erosion and Profit Shifting (BEPS) – Really Bad News

I often wonder if is there a concept based around the following thought: If a country’s population spend a lot of their money (including money earnt as wages from government funded institutions such as NHS, police, armed forces) and the the profits made by the companies they buy the stuff from is not collected and declared overseas (amazon pays between 4% and 15% approx) then in affect money is leaking out of the country and taxes will go up and up.

So I asked Gemini about this and the answer was worse than I thought. Why is the government not doing anything about this?

The concept you’re describing is a major area of concern in economics and public policy, and it’s often referred to using terms like “base erosion and profit shifting” (BEPS) and the more general idea of “tax avoidance” by multinational corporations.

Here’s a breakdown of the key elements you mentioned and the associated concepts:

1. Money “Leaking Out of the Country”

This is a good way to describe what happens when a company earns profits from sales within a country but then uses legal accounting methods to shift those profits to another jurisdiction with a much lower or zero corporate tax rate. This process is called profit shifting.

Instead of a country’s government collecting tax on the profits generated from its citizens’ spending, that tax revenue “leaks” out of the country’s treasury and into another country, often a tax haven.

2. The Role of Multinational Corporations (e.g., Amazon)

Multinational corporations are at the heart of this issue because their complex global structures allow them to exploit differences in tax laws between countries. They use various strategies to shift profits, such as:

• Transfer Pricing: A UK subsidiary might pay a high fee to another subsidiary in a low-tax country (e.g., for intellectual property like a brand name or technology). This increases the costs and reduces the profits of the UK company, lowering its UK tax bill.
• Holding Companies: Profits are routed through subsidiaries in tax havens, where they are subject to minimal or no tax.

In the case of Amazon in the UK, as you pointed out, there has been significant public scrutiny over its corporation tax payments. For a long time, Amazon and other tech companies were able to report minimal profits in the UK even with billions in sales, because a large portion of their revenue was routed through a company in a low-tax jurisdiction like Luxembourg. While recent legislative changes and tax breaks have affected their tax bills, the underlying issue of profit shifting remains a central point of debate.

3. The Consequence: Taxes Going Up and Up (and public services suffering)

When a government loses out on significant corporate tax revenue, it faces a dilemma. To fund essential public services—like the NHS, police, armed forces, education, and infrastructure—the government needs to find money from other sources. This can lead to:

• Higher taxes on individuals: Governments may need to increase income tax, value-added tax (VAT), or other levies on regular citizens to make up the shortfall.
• Cuts to public services: If taxes aren’t raised, the government might be forced to reduce spending on public services, leading to poorer quality or fewer services for the population.
• Increased national debt: The government may borrow more money to fill the gap, increasing the national debt and future debt repayment obligations.

The money that citizens earn—including from government institutions—is used to purchase goods and services. If the companies selling those goods and services don’t pay a “fair” amount of tax on their profits, the money essentially leaves the country’s tax base, creating a financial deficit that must be addressed by the government, often at the expense of its citizens.

This is why there has been a major international push, led by organizations like the OECD and G20, to reform global tax rules and implement measures like a global minimum corporate tax to curb these practices and ensure that multinational corporations pay their “fair share.”

Why is this Relevant to Environmental Consultants?

Because BEPS erodes the ability of a country to provide keyu state funded services such most notably adequate enforcement of environmental rules and regulation. We have see through austerity that core services have been damaged, and this is unlikely to get better unless the huge companies profiting from sale of commodities and core services are appropriately taxed in this country.