guardian.co.uk,
Richard Murphy for Tax Research UK, part of the Guardian Comment Network, Tuesday 16 October 2012
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| 'We have homegrown coffee shops in the UK. And they have to pay their taxes in full.' Photograph: Keith Bedford/Reuters |
When the
tax avoidance debate is about Google, Facebook and Apple it can be argued that
the UK has no equivalent companies so that there is nothing that can be done
about what's going on. We must, it is said by some in those cases, put up with
what US companies will do for the benefit of having them here in the UK. It's
not an argument I agree with, but it's one that is right if only to the extent
that it's true that there are no UK equivalent entities.
Suggestions
that Starbucks is avoiding tax changes that. We do have homegrown coffee shops
in the UK. A lot of them. And they have to pay their taxes in full here in the
UK. They can't make payments to offshore entities for the use of their logos or
advice on how to add hot water to coffee just to avoid tax: they have to pay in
full on what they earn in this country. What Starbucks is doing may be legal,
but what it also shows is that business does not operate on a level playing
field in the UK.
Reuters is
suggesting that Starbucks use offshore licensing, transfer pricing that routes
profits to Switzerland and intra-group funding to reduce their UK profits. The
result is that despite Starbucks apparently being a highly successful operation
– something they do not just acknowledge, but make a point of saying – they
haven't paid tax here for the last three years.
When
contacted by Reuters, a Starbucks spokeswoman said: "We seek to be good
taxpayers and to pay our fair share of taxes … We don't write this tax code; we
are obligated to comply with it. And we do."
And let's
straight away dismiss the "but their employees pay income tax and NIC and
their customers pay VAT" argument: that's equally true of their UK-based
competitors who must also pay corporation tax.
What's
clear from what's happening is something that's been glaringly obvious to a few
for a long time, but for which there hasn't been a clear example, and that is
that multinational companies and the rules by which they can trade very
obviously provide a clear, unfair and wholly unjustifiable competitive
advantage to such corporations over smaller, locally owned and nationally based
businesses.
This makes
no economic sense. First, even the most pro-market person will say that tax
should not distort markets. On this occasion I agree with them: there is no
reason at all why the UK tax system should favour one company over another in
this country when they are in direct competition one with another.
More than
that though, if there is to be any such competition it should be the smaller,
homegrown business that should very clearly get the support of the tax system.
But it isn't: the exact reverse is happening.
That's bad
for British business, bad for the prospects for growth in this economy, bad for
the creation of an atmosphere of tax compliance in the small business community
when they can clearly see the tax system picks on them, and bad for communities
of the UK that need local initiatives to ensure that they prosper and thrive.
The UK
international tax system is failing us. HMRC say they can't do anything about
that: candidly I don't believe them. They could stop sacking staff, for a
start. But even if that were true they would still have a duty to point out the
fact that the system is not working fairly and to suggest to ministers ways in
which the system should be reformed.
Saying that
does, however,point this whole issue back to where change has to happen, which
is at the top, in the field of tax policy making, which is firmly located in
the political domain.
And there
are serious questions to be raised at this level, targeted most heavily at the
current government. The last Labour government made a policy mistake by
excluding the dividends received by UK companies from their overseas
subsidiaries from tax, which at a stroke made the use of tax havens much more
attractive. But this government has exacerbated that, considerably. It has made
clear that almost no questions will now be asked about the use of tax havens by
multinational companies by virtually abandoning the UK's controlled foreign
company rules and it has actively encouraged multinational companies in the UK
to move their treasury functions out of the UK and into tax havens. At the same
time it has made sure that the barriers to smaller companies doing this remain
in place. The charge that can be levelled against this government is then that
it has deliberately widened this gap between large and small companies and
national and multinational companies so that the small and nationally based
companies are always penalised. They've even shifted corporate tax rates for large
companies to ensure that this is the case too.
So the
Starbucks tax case is important because it raises real issues of tax policy
here in the UK that if not addressed will threaten the viability for UK small
businesses. There can't be anything much more important than that when we're
looking for UK business to help pull us out of the recession, but so far the
government seems quite unable to see the seriousness of the situation they have
created. And that leads to the inevitable question of why that is the case, and
in whose interests they are governing.
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| How much tax is paid by major US companies in the UK? |
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