Don’t blame Starbucks – fix the tax code

Published on 04/12/2012 00:00

The public accounts committee is indulging in grandstanding in accusing Starbucks, Amazon and their ilk of immoral behaviour in 
legally avoiding as much tax as they can (your report, 3 
December).

One can quite easily put together a case that their shareholders (who are often also their employees) have a right to expect the companies to whom they entrust their investments to maximise the returns they earn while obeying the laws of the countries they operate in; and paying more tax than they are legally required to would be a dereliction of that duty.

It might even constitute behaving immorally towards shareholders and employees (after all, every pound paid to the tax man is a pound not available to increase the low wages of baristas and warehouse staff).

In any case, companies and executives that voluntarily pay more tax than the tax man asks for – and thereby earn lower after-tax returns than their competitors – will soon be replaced by 
companies and executives who pay what the law requires and focus on generating the best possible returns for their shareholders while doing so.

The correct target is HM Government.

Of course, it beggars belief that a company as successful and ubiquitous as Starbucks, with almost £400 million of UK sales, can somehow be “unprofitable” and thus 
escape liability for corpor-ation tax.

But the cure for this is not to castigate the tax exempt for supposed immoral behaviour in not volunteering to pay taxes they’re not liable for, but to fix the tax system.

Starbucks is unprofitable in the UK because our tax code allows such high royalty payments, inter-company loan interest levels and other fees to be counted as 
legitimate costs to offset profit that, by virtue of HMRC’s view of the world, they end up unprofitable.

Customers remain willing in their droves (perhaps less so in the wake of the recent publicity over the company’s tax affairs) to pay well over the odds for extortionately priced milky drinks and muffins that cost pennies to make, yet HMRC presides over a tax code that deems such a well-oiled money-making machine “unprofitable”.

If what we want is the short-term satisfaction of publicly whipping Amazon, Starbucks, eBay et al over a supposed duty to pay “fair” taxes as opposed to the taxes the law requires, then the public accounts committee has done us a service.

But if what we want is for the problem actually 
to be fixed and for profitable multinationals to pay a 
reasonable proportion of their profits to the UK Treasury, we need to stop expecting turkeys to vote for Christmas and start fixing the broken tax code that allows the situation to arise in the first place.

Martin Togneri

Springfield Grange

Linlithgow