Amazon, Starbucks and Tax

When it comes to coffee, Starbucks is the last place I think of going. The fact is its coffee is almost as nasty as Costa’s (“Saving the world from mediocre coffee by drowning it in shit coffee”).

Apparently, though, people are starting to boycott Starbucks because it has been named and shamed as a non-payer of UK corporation tax, and it’s now going to go to HMRC to see if it can pay a bit more. Just enough more to stop the boycott, mind.  Because if Starbucks were to pay a penny more tax than it had to, it would be in breach of company law. Its duty is to act in the best interests of its shareholders. If sales fall because of the boycott, it’s doing the right thing by them by discussing matters with HMRC. Anything to head off the boycott.

Margaret Hodge, chair of the Parliamentary Committee which grilled these companies about their tax affairs, was guilty of political grandstanding. OK, that’s her job, just as much as avoiding tax is the job of the directors of Amazon, Starbucks et al. But the press needs to be cleverer than this and point out the inconsistency in her position. What is wrong is the system that allows companies to get away with paying so little tax – making, for international corporations, corporation tax largely voluntary.

Corporation tax is a tax on company profits. Profits are not, despite immediate appearances, objectively determined. Profits as calculated for corporation tax aren’t the same as profits as calculated for reporting to shareholders; evidently, because Starbucks has (for tax purposes) been operating at a loss in the UK, but (for reporting to shareholders) been operating at a fat profit.    This subjective assessment is ripe territory for expensive tax advisers, and we are now seeing the opening of an arms race as Osborne announces more resources for HMRC inspectors to sort the mess out.  Will it work? I doubt it.

Tax, to be fair, must be assessed against objective criteria, and profit is subjective. It’s the wrong base on which to tax companies. I’ve written elsewhere at some length why I think that corporation tax should be abolished (since it is, effectively, a tax on pensioners rather than corporate fat cats);  but if you are going to tax corporations, tax them on their cash flow. Cash flow, unlike profits, is objective.

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