Is government too scared of Google, Amazon and Starbucks?

 

Multinational companies such as Starbucks, Amazon and Google were singled out by MPs as paying surprisingly little tax

If the UK had an industrial strategy over the past 30 years, it could perhaps have been characterised as "foreigners more than welcome".

To a greater extent than any developed economy, British governments have been almost wholly lacking in concerns when overseas companies set up shop in the UK or bought businesses here - because of the conviction that these overseas companies would bring decent management, useful competition and investment capital to this country.

Against this government policy backdrop, Google, Starbucks and Amazon seem to be examples of huge American companies doing as well or better in the UK than anywhere apart - perhaps - from their home market in the US.

That, at least, would be the case if success is measured in terms of revenues or market share.

Now, it should be said that if you talk to their British competitors, it is moot how much benefit their presence in Britain has actually delivered.

Media companies - television, radio and newspapers - have complained for years that Google takes colossal and growing amounts of net advertising revenues, while investing relatively little in the gathering of news or the making of television and radio.

Owners of small independent coffee shops are not exactly huge fans of Starbucks.

And there is no kind of British retailer, big or small, which isn't terrified of Amazon's growing presence in every area of consumer sales.

These are businesses that are transforming entire industries. Many of the consumers who use them would probably say for the better. Struggling competitors and their employees, inter alia, would say for worse.

Here are the questions posed by their growing presence in the UK:

  • is British cultural life richer or poorer for the migration of advertising revenues to Google?
  • does Amazon cause or merely accelerate the dereliction of swathes of the High Street?
  • is Starbucks a force driving down prices and improving service, or a lumbering quasi-monopolist crushing everything in its path?

And although they employ many thousands of people in Britain, it is unclear whether collectively they are net creators or destroyers of employment - and, in particular, whether they are net creators of what might be thought of as rich and fulfilling employment.

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Is it remotely plausible that they would suddenly emigrate and stop trying to sell as much as possible to British consumers if they suddenly faced [bigger] tax bills?”

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This is not to take sides in what is an important debate, with passions that run high on both sides, merely to point out that their huge presence in the UK can't be assumed to be a net good thing.

Which is why today's report by the Public Accounts Committee (PAC), which points out that as huge and clever multinationals they exploit legal devices to minimise their liability to corporation tax in the UK, is of moment.

The thing about Google, Starbucks and Amazon is that they declare surprisingly little profit in the UK on the back of their massive market shares.

"Starbucks told us that it has made a loss for 14 of the 15 years it has been operating in the UK, but in 2006 it made a small profit" - in spite of a reported market share of almost a third.

As for Amazon, it had sales in the UK of £3.35bn in 2011, reported turnover in its UK operation of £207m and a "tax expense" of just £1.8m.

And for Google, its reported British revenues last year were £396m, on which it paid corporation tax of £6m.

Now for the avoidance of doubt, these three multinational companies are by no means unique in minimising their UK tax liability. Like all public companies, they have a duty to their shareholders to minimise their costs of doing business.

As it happens, the finance director of a huge British multinational, Vodafone, recently wrote a letter to journalists explaining why it paid no UK corporation tax in 2011-12.

If you are a shareholder in any multinational - and you will be, if you are saving for a pension - then it is in your interest that many use accounting techniques to channel their revenues to regimes, like Ireland, the Caymans and Bermuda, where tax rates are negligible to non-existent.

But none of us are just shareholders. We are also citizens. And we have an interest in making sure that companies that benefit from an educated workforce, a free health service, a solid and reliable legal system and an efficient transport network, make their proper contribution to an infrastructure whose absence would be devastating to them.

Which is why MPs on the PAC want Her Majesty's Revenue and Customs to be more aggressive in challenging the nugatory UK profits and minimal tax liabilities declared in the UK by the likes of Google, Starbucks and Amazon.

Here is an interesting question. Now that all three of them are so huge in the UK, is it remotely plausible that they would suddenly emigrate and stop trying to sell as much as possible to British consumers if they suddenly faced tax bills comparable to those paid by less internationally mobile UK companies?

Arguably their great success in the UK has shifted the balance of power towards the British tax authorities and the government. Google, Amazon and Starbucks would have a huge amount to lose if they reduced their commitment to Britain.

UPDATE 13:00 GMT

Starbucks is planning to change the way it allocates its costs for tax purposes in a way that should see it paying corporation tax in the UK for almost the first time, I have learnt.

Responding to criticism that, despite its share of almost a third of the UK coffee-shop market, it has paid corporation tax only once in 15 years, Starbucks is considering changing the way it accounts for all or some of the 4.7% of revenues it makes as a payment "for intellectual property" to a Netherlands-based company.

As I understand it, Starbucks in the UK would still make this payment, but it would no longer claim it as a taxable expense.

If Starbucks goes ahead with the accounting change, the announcement is likely to come before the chancellor's Autumn Statement on Wednesday.

This would then increase pressure on other multinationals which pay little or no corporation tax on huge sales in the UK - and especially Google and Amazon - to similarly increase their liability to UK corporate taxation.

MPs on the public accounts committee today said of Starbucks: "We find it difficult to believe that a commercial company with a 31% market share by turnover, with a responsibility to its shareholders and investors to make a decent return, was trading with apparent losses for nearly every year of its operation in the UK."

A source close to Starbucks said that the Seattle-based multinational had been stung by the criticism and was changing its ways.

 
Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this
    +83

    Comment number 15.

    Dear Starbucks.
    Thank you for selling coffee to us at a 'loss', despite us subsiding your employee wages through tax credits etc. Please don't leave the UK, we need you and the 'virtually nothing' tax revenues you provide. Besides it must be really complicated buying coffee and adding water, if you left no one else would be able to do and all the caffeine addicts would die.
    UK tax payer.

  • rate this
    +63

    Comment number 25.

    @ Pinch of Salt - Corporation tax is not a red herring. If the multi nationals weren't here, the UK would still have the same numbers of shops and businesses doing the in-country work done by the corps. And they would be paying the same income tax, because they would be employing the same number of people. BUT - they would also be paying UK corporation taxes ...

    Small is beautiful ....

  • rate this
    +58

    Comment number 42.

    The Politicians, Treasury and HMRC have been aware of this possibility for years.
    One Question to the above.
    Why have you not done anything about it until now?

  • rate this
    +53

    Comment number 57.

    If these companies pulled out of the U.K. today, the "vacuum" would soon be filled by other companies selling to a current mature market. This would take up the jobs lost and increase tax revenue as these other providers would be more willing to pay tax.

  • rate this
    +42

    Comment number 24.

    Driving these companies offshore would be a massive own goal.
    ---
    ? They're already run from overseas.That's the problem, that's why they don't pay tax.

    And they're businesses, they will not leave if there's a profit too be made here. They'd be insane to desert an affluent market of 56 million odd people.

 

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