Amazon and Google face tax attack

 By Louise Armitstead, Chief business correspondent

The Treasury wants to work with other jurisdictions, including the US and continental Europe, to close the loophole that allows web-based companies to avoid millions of pounds of tax on earnings around the world. 

The Chancellor is expected to appoint a tax expert to lead a consultation into the practicalities of a new levy following public and political criticism of the low levels of tax paid by some of the biggest companies operating in Britain. The move is expected as early as the Autumn Statement on Wednesday. 

More pressure for reform will come from the Public Accounts Committee which is publishing its report into Britain's treatment of international earnings. The Parliamentary Committee has accused Google, Amazon and Starbucks of being "immoral" in paying low levels of corporation tax. 

In evidence to the Committee, it emerged that Amazon recorded £2.9bn sales last year but declared Amazon.co.uk sales of just £207m. Over three years, the UK division has paid £2.3m corporation tax on £7.1bn sales. 

Google paid £6m corporation tax on £2.5bn of UK revenues in 2011. Last week Matt Brittin, chief executive of Google UK, said MPs were blaming companies for a system that they had designed. "Google plays by the rules set by politicians," he said. "The only people who really have choices are politicians who set the tax rates." 

George Osborne is planning to use the announcement to launch a renewed assault on loopholes in the tax system as well as fresh anti-avoidance moves. The Treasury is planning to unveil a new "information sharing" agreement with Britain's Crown Dependencies under which the governments of Jersey, Guernsey and the Isle of Man will pass on details of accounts and investment trusts held in their jurisdictions. 

At a meeting at the Treasury last week, the islands' authorities discussed a raft of demands for disclosure from the UK Government which wants to clamp down on off-shore tax avoidance. The Treasury has asked the Crown Dependencies to agree to the extra disclosure as part of their implementation of rules required by America's Foreign Account Tax Compliance Act (Facta). Island authorities complained that the demands will result in punitive administrative costs but their objections have been over-ruled. 

The Treasury is planning to seek similar agreements to extract information on clients in Britain's Overseas Territories, including the Cayman Islands, the British Virgin Islands and Bermuda. Experts say that the clamp-down on British territories is "low-hanging fruit" but taxing web-based companies is far harder. 

John Whiting, who has advised the Government on tax policies, said: "Our corporation tax system is fundamentally ill-equipped to cope with our electronic era. The rules were designed when you could look at a lump of machinery and say, yes, the trade was done here, but when orders are made at the click of a button over the internet, where a trade happens and where profits have been made is far less clear. It needs to be looked at." 

A number of UK domiciled companies such as John Lewis, Dixons and Wm Morrrison have called for a change. Richard Pennycook, finance director of Morrison said: "We want a level playing field. What applies to one company should apply to another. There are big differentials in what companies pay. The Chancellor must look into this and regulate. Taxes on activity here in the UK should stay here. Transparency is very important." 

The Chancellor has signalled his willingness to work with other leaders on a new system. The OECD is also looking at the issue.