Friday, 7 December 2012

Starbucks & the HMRC voluntary tax regime

After a couple of months of extremely bad press about their corporation tax avoiding activities, Starbucks finally caved into massive public pressure and declared that they intend to pay £20 million in UK corporation tax over the next two years.

There are positives and negatives to take from this story. I'll start by noting that this voluntary tax contribution would never have been achieved without massive public pressure. Had UK Uncut not targeted Starbucks and had bloggers and social media activists not spread the word about Starbucks elaborate tax dodging scams, the company would never have offered to cough up a token tax contribution. This is absolutely clear evidence that public activism works. If Starbucks weren't looking at severe damage to their "brand identity" and massive revenue reductions due to the Boycott Starbucks campaign, they would certainly never have voluntarily offered to reduce the scale of their tax-dodging operations.

This brings us to the negative aspects. The offer to pay a predetermined "token tax" contribution is quite obviously nothing but a desperate attempt to stop the savaging of the Starbucks brand. Starbucks bean-counters have realised that if the Boycott Starbucks campaign continues, they'll loose £millions in revenues. Their solution is to slash labour conditions and paid benefits such as sick pay, maternity pay and paid lunch breaks to make some savings and then offer those savings up as their voluntary "token tax" contribution. Staff have been told to sign revised employment contracts or face dismissal. Starbucks have claimed that the new contracts being forced on their staff have nothing to do with their tax arrangements, however the fact that staff are being made to sign new contracts in the week that Starbucks have announced their "token tax" contribution looks extremely suspicious.

The next negative aspect of Starbucks' voluntary tax contribution is that the rules that allow such huge tax avoidance arrangements that provoked the Boycott Starbucks campaign remain completely unchanged. The Tory led government keep insisting that no new anti-avoidance legislation is necessary and that their "race to the bottom" cuts in corporation tax rates are the "best" way of reducing tax avoidance. HMRC are no better, they seem absolutely intent on maintaining their cosy relationships with major corporate tax avoiders.

The Boycott Starbucks campaign has been relatively successful, in that the company have decided to make a "token tax" contribution in order to mitigate the damage, however, the rules that allow multinational corporate tax-dodging remain in place. Without government intervention and an end to HMRC's "kid gloves" approach to major tax-dodging corporations, the scale of tax-dodging won't be reduced, especially given that 98 of the 100 FTSE 100 companies maintain offshore subsidiaries for tax dodging purposes.

The reason the Boycott Starbucks campaign has achieved a relative level of success in relation to other major tax-dodgers is that it is much easier to boycott a visible high-street chain, than it is to boycott a major online presence like Google or government service providers like Mapeley (the Bermuda based tax-dodgers that have a lucrative contract to run the HMRC property portfolio!).

The UK shouldn't be reliant upon public pressure driving large corporations to make voluntary tax donations as a response. The nation needs government intervention and a major simplification of the tax code. Here are my two suggestions:
1. A Ban on taxpayer funding of tax avoiding companies. There is absolutely no justification for allowing taxpayer generated funds to be provided to tax-dodging companies (in the form of subsidies, outsourcing contracts, R&D loans, procurement contracts, health contracts, IT contracts, training schemes, PFI deals...)*. If an enterprise won't demonstrate that they are a British based company (or registered subsidiary) that pay their fair share of taxes, they mustn't get a penny from the government. They should also have to demonstrate that all employees are paid in a tax transparent way, with no personal service companies, offshore dividends and the like.

2. A blanket ban on all tax avoidance schemes. After the government spending regulations have been brought into effect, a simple change to the tax code should be made to legislate that if a scheme is designed for the explicit purpose of avoiding tax, then it is by definition a criminal activity.
* More details on why tax-dodging is harmful to the UK economy can be found on the Economic Case Against Tax-Dodging article.
The obvious problem with these proposals is that the Tory party receives donations from a number of tax-dodgers, and are led by a man that inherited £300,000 from his father's offshore tax-dodging empire. Despite all of their rhetoric on combating tax-dodging, the Tory party have actually been opening up even more tax loopholes for the benefit of multinational tax-dodging corporations. Expecting the Tory party to actually clamp down on tax-dodging is like expecting UKIP to endorse the UK's membership of the EU.

Given that the current Tory led government have a number of vested interests in keeping the UK tax regime as soft as possible, and that they have a demonstrable track record of actually opening up new tax-dodging loopholes, it seems that the most pragmatic course would seem to be to put pressure on the Labour party to include some explicit anti-tax-dodging proposals in their next manifesto.

Despite the fact that a move to end taxation asymmetry between the multinational corporations and Britain's small and medium enterprises would be extremely popular with the taxpaying public, it actually seems unlikely that Neo-Labour would do anything significant to combat tax-dodging, especially given the deep involvement of tax avoidance specialists like KPMG within the Labour party (secondment of staff, sponsorship of conference events and direct political donations). Another reason to be suspicious of Neo-Labour's willingness to clamp down on tax avoidance is the fact that they were the ones that actually introduced the Limited Liability Partnerships that have been widely used in tax-dodging scams such as the Icebreaker LLP that was used in the Jimmy Carr tax-dodging scandal and the Sloane Robinson LLP that was used to facilitate the tax-dodging activities of the major Tory donor George Robinson.

However sceptical we are that any of the three establishment political parties would be prepared to offer anything but empty rhetoric on tax-dodging, the pressure must be maintained, so that they know that if they do choose to take a genuine tough stance on multinational corporate tax-dodging, there would be millions of votes from hard pressed taxpayers and the owners of Britain's taxpaying small and medium enterprises in it for them.

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