Starbucks, Amazon, Google, and other global
megabrands are not paying much corporate tax in the UK. Starbucks,
for example, has paid zero corporation tax in the past three years,
despite having almost one third of the UK coffee-shop market in
turnover, and told its shareholders that its UK arm was making 15
per cent in profit. It manages all this by charging itself a series
of premiums that are paid to its Dutch and Swiss offices, where
taxes are much lower.
Other multinationals pursue similar policies - so
much so that government revenue from corporation tax fell by £6.4
billion last year. Margaret Hodge, who chairs the House of Commons
Public Accounts Committee, says that clever accounting tricks mean
that paying corporation tax has, for some large global firms,
become almost voluntary. This is, she says, "immoral".
You can see her point. At a time of financial
austerity, ordinary people who have no choice but to pay their
taxes in full are outraged at companies that take profits from the
UK, and then refuse to pay their proper share of tax.
What goes around comes around, as the proverb has
it. It was in 1989, in a book calledBad Samaritans: First World
ethics and Third World debt,that I firstexamined the business of
what is called "transfer pricing", whereby a transnational firm
adjusts the price of goods that it transfers between subsidiaries
in different countries, in order to pay as little tax as possible.
In those days, the chief victims were developing countries with
abundant resources, cheap labour, weak trade unions, a lack of
environmental laws, and tax concessions from desperate,
manipulable, or corrupt government élites.
Well, now the boot is, if not exactly on the other
foot, swinging in our direction. There are two ways of dealing with
this. The first, then as now, was by consumer boycotts and public
condemnation. Today's politicians are flirting with that. Ms Hodge
has announced that she will buy her grandchildren's Christmas
presents at John Lewis rather than on Amazon. Danny Alexander, the
Chief Secretary to the Treasury, says that he's not drinking
Starbucks coffee. Starbucks has since set up a meeting with the
British tax authorities to discuss its tax bill.
But public indignation takes us only so far; as does
a company's deciding for PR reasons that it had better be seen to
pay a bit more of its fair share of tax. The problem is what a
"fair share" is, and who decides. Companies argue that they have a
fiduciary duty to maximise profit by minimising costs, including
taxes. It is only what we do when we claim deductions or credits on
our tax bill.
The answer is that it is for politicians to decide.
It is not a one-sided equation. On the one hand is the public
outrage; on the other hand, they know that if we tax international
companies punitively, they will move elsewhere - and take jobs,
VAT, and employment taxes with them.
Firms use many mechanisms to avoid tax. Some ship
goods, on paper only, to tax havens such as the Cayman Islands.
Others lend funds from the parent company to an overseas subsidiary
at artificially high rates of interest. Some subsidiaries make
over-generous payments to the parent to cover the intellectual
property rights of using a well-known brand-name.
Controls are possible. The US tax authorities have
considerable powers, under Section 482 of the Internal Revenue
Code, to allocate income, deductions, credits, and other allowances
inside the part of a transnational that falls under their
jurisdiction. Other nations could do the same, separately or
through international agreements. It would be helpful if British
politicians, instead of huffing and puffing, were to turn their
attention to the detail of how to do this.
Paul Vallely is associate editor of The