The coffee chain says it’ll cough up £20m in corporation tax over the next two years, are other businesses next?
Well done to UK Uncut and the Guardian for claiming their first scalp.
The world’s biggest coffee chain, Starbucks, has buckled under pressure from the public and MPs after a deluge of stories about the rate at which it pays corporation tax.
It has rushed to the boys at HM Revenue & Customs, pledging to bash out a way of paying its dues.
Starbucks has decided to pay £10m in corporation tax for the next two years, regardless of whether the company is profitable.
The champagne may have to be re-corked for the tax campaigners as it emerged that the guys at the top of Starbucks haven’t sacrificed anything to handle this tax change.
7,000 UK Starbucks staff arrived at work to find out their lunch-breaks, sick leave and pay increases were on their way out.
Meanwhile Amazon and Google have refused to budge on their tax affairs.
Was it a bit self-defeating? Nigel Green, chief executive of the deVere Group, warns of a “serious anti-business precedent” if Starbucks pay more than they lawfully need to do.
“A tax system which is based on ‘donations’ as a result of blistering attacks from MPs on a handful of high-profile companies, could deter foreign firms from investing in the UK,” he adds.
Green is onto something when he talks of donations, as the tax system reveals that “gifts to the nation” over the last few years have been very few and far between. In 2003-4, the government was given precisely zilch, a huge drop from the 2002-2003 amount of £3.
The amount barely rises in 2004-2005, just to a level of £30.73. The highest donation was from whoever left £4,705.17 down the back of the sofa and thought it’d be good to help the government bail out the banks with in 2008/2009.
But does this mean the public needs to get cracking and badger companies to pay more to the exchequer?
Chas Roy-Chowdhury, tax head at the Association of Chartered Certified Accountants, is careful to warn that the public and politicians shouldn’t “over-reach and over-bully”.
Chowdhury would be referring to groups like UK Uncut, which is much blunter in telling Londonlovesbusiness.com that “it isn’t up to Starbucks to start volunteering to pay tax”.
In their eyes, I’m told, it’s up to the government and HM Revenue & Customs. But aren’t companies like Starbucks still operating within the law? You’d think that law would be pretty black and white – you’re either right or in the wrong.
Far from it, as UK Uncut tell me, “the point of the law is it can be changed, law is based on morality”.
Doesn’t that suggest, as Dan Hodges has argued in the Telegraph, that tax has changed from legal/illegal to a “goody” tax rate and “baddy” tax rate?
The problem could lie in the faulty tax system, as tax partner at MHA MacIntyre Hudson Katharine Arthur argues:
“If Starbucks has paid the ‘right’ amount of tax then the Government’s only option is to change the rules.”
Tax partner Vince McLoughlin (from Russell New) is similarly sceptical, arguing:
“If the legislation needs changing, then change it, don’t use morality as a means of raising taxes. It is also quite interesting that there are to be discussions about how much tax Starbucks is to pay in corporation tax.
“I hadn’t realized tax was a voluntary contribution. Can we all join in those discussions please…? I’m sure there’ll be a long queue.”
The risk of morality getting into tax could be dramatic for business, as Milestone International Tax Partners founder Miles Dean points out:
“Why would any multinational structure their UK footprint such that they paid more to the UK than was necessary? The law allows a UK company to deduct expenses (be they interest, royalties, management charges, etc.) in computing taxable profits; the fact that such expenses are paid overseas is irrelevant.”
Dean’s colleague Conor Delaney is riled by the “strong arm tactics” from MPs in getting Starbucks to cough up.
“Strong arm tactics by Margaret Hodge the Public Accounts Committee appear to be paying off. Google and Amazon will be under pressure to follow suit, but where does this end, and at what cost to the UK’s reputation as an investment destination for multi-nationals?
“This is symptomatic of a shift in the global tax landscape whereby companies will need to give additional consideration to reputational considerations rather than the strict letter of the law.”
With tax campaigners getting a taste for blood, this could lead to massive legal bills. The tax arrangements agreed between multinationals and HMRC, although seemingly unfair, are accepted as part of the process – even by tax purists like LibDem MP Stephen Williams.
Richard Jordan, partner at Thomas Eggar, makes the very same warning on the costs of litigation.
“HMRC carefully picks its battles and chooses to spend the tax payer’s money only on cases that it has a realistic prospect of winning. To do otherwise would be madness. The cost of litigation is immense and, if there is one good way to demonstrate inefficient and wasteful public spending, it would be to litigate on lost causes.
“If MPs are unhappy, then they should change the law to make the corporations pay more tax. HMRC employees have a lonely and thankless job to do, but they do it well. It is disappointing to see them publicly undermined and criticised by some MPs in this way.”
The solution seems that MPs need to turn their fire away from corporations and focus on the legislation that allows corporations to get away with such “unfair” tax arrangements.
As Tory MP Andrea Leadsom explains, “if there are loopholes, it’s only rational for companies to use them”.
And who passes the legislation?