Google, Amazon, Starbucks: The rise of 'tax shaming'

 
Multinationals and tax protesters

Global firms such as Starbucks, Google and Amazon have come under fire for avoiding paying tax on their British sales. There seems to be a growing culture of naming and shaming companies. But what impact does it have?

Companies have long had complicated tax structures, but a recent spate of stories has highlighted a number of tax-avoiding firms that are not seen to be playing their part.

Starbucks, for example, had sales of £400m in the UK last year, but paid no corporation tax. It transferred some money to a Dutch sister company in royalty payments, bought coffee beans from Switzerland and paid high interest rates to borrow from other parts of the business.

Amazon, which had sales in the UK of £3.35bn in 2011, only reported a "tax expense" of £1.8m.

And Google's UK unit paid just £6m to the Treasury in 2011 on UK turnover of £395m.

The art of paying less tax

Everything these companies are doing is legal. It's avoidance and not evasion.

But the tide of public opinion is visibly turning. Even 10 years ago news of a company minimising its corporation tax would have been more likely to be inside the business pages than on the front page.

What changed? And is "shaming" of companies justifiable and effective?

Momentum has been growing for the last few years.

In September 2009, the Observer ran with the headline: "Avoiding tax robs our public services, declares minister". The paper reported that the government was planning to say tax is a "moral issue" and that it was "determined to end avoidance and evasion."

October 2010 - and the Vodafone case - saw the Daily Mail report: "Vodafone closes Oxford Street store at £6bn tax protest".

A few months later and the focus moved to Sir Philip Green's business empire. "Crisis? What crisis?" reported the Mail, which said the TopShop boss was "enjoying" a Barbados holiday while thousands of campaigners laid siege to his UK stores.

Barclays Bank was the next target - in February 2011 the Daily Express reported on the "raid" by tax protesters, who shouted: "Dave and George do your sums." Later that same month, the Guardian ran with the headline "UK Uncut: 'People are starting to listen to us'".

Withdrawal of custom

Mike Buckhurst

Another impact of tax shaming is that some people, such as 45-year-old self-employed businessman Mike Buckhurst, from Manchester, boycott brands.

"I've uninstalled Google Chrome and changed my search engine on all my home computers. If I want a coffee I am now going to go to Costa, despite Starbucks being nearer to me, and even though I buy a lot of things online, I am not using Amazon.

"I'm sick of the 'change the law' comments, I can vote with my feet. I feel very passionate about this because at one point in my life I was a top rate tax payer and I paid my tax in full," he says.

To some extent, the shift is down to the recession, according to Dr Stuart Roper, a corporate reputation expert at Manchester Business School.

"We are in an age of deep public spending cuts and real austerity. And this [tax avoidance] is not a victimless crime, if you like. If this was six or seven years ago, pre-financial crisis, I don't think it would have had the same impact it's had now," he says.

War on Want's tax justice campaigner Murray Worthy says there has also been a change in public perception.

"As the public have got to understand better what corporate tax avoidance is, there is a clear sense of outrage that is going well beyond a small group of protesters - it's something that the public feels is really not right with the current system," he says.

Discussions of the ethics of tax avoidance are now everywhere. But a few years back, it was a hardcore gaggle of activists and campaign groups like UK Uncut that were staging sit-down protests in stores such as the Arcadia Group, Boots, Vodafone and Fortnum and Mason.

Journalists and newspapers are also doing their own investigations, argues Worthy, with the appearance of Google, Starbucks and Amazon before the Public Accounts Committee a result of stories by the Daily Telegraph, Reuters and the Guardian respectively.

In a report published on Monday, the committee's chairwoman Margaret Hodge said the level of tax taken from some multinational firms was "outrageous" and that HM Revenue and Customs needed to be "more aggressive and assertive in confronting corporate tax avoidance".

MPs also called for those who do not pay their "fair" share to be named by the government, but Prime Minister David Cameron and Chief Secretary to the Treasury Danny Alexander ruled it out, saying it would breach taxpayer confidentiality.

Tax protester with police

But just how effective is tax shaming anyway?

The idea that Starbucks would voluntarily pay more tax than it legally needs to seems extraordinary on the surface, and an argument for the effectiveness of tax shaming.

"Up until yesterday, I wouldn't have thought these stories had much effect. I thought companies would carry on doing what they were doing, but look over their shoulder, in terms of their reputation," says Michael Devereux, a tax expert at Said Business School, University of Oxford.

Corporate tax avoidance

  • Locating factories, service and distribution hubs and regional HQs in low-tax jurisdictions
  • Starbucks, for example, sources its UK coffee from a wholesale trading subsidiary in Switzerland
  • And Google operates in Bermuda and Ireland
  • Transfer pricing is when a division of a multinational in one country charges a division in another country for a product or a service
  • This means artificially high charges can be levied internally, to siphon money from a high-tax country to a low-tax one

"Starbucks appears to be saying they don't think they owe any more money, but will pay anyway. If that's true, it's having a reputational effect - but it's a bit odd in terms of the tax system, we wouldn't want the tax system to be voluntary," he says.

Branding experts agree the reputational side of things is key, as it is hard to measure the direct impact of tax shaming on sales and profit.

Dr Sue Bridgewater, a marketing expert at Warwick Business School, says if a company with a strong brand damages that, it also damages its financial "value".

"Customers have very long memories and their emotional tie to a brand is a very important part of the loyalty," she says.

But Roper says even reputational damage is difficult to ascertain and can quickly dissipate.

Another impact of tax shaming is that individuals can boycott brands, but Roper says the number of people who take direct action is "relatively low".

What is more dangerous for companies is social media, he says - citing #boycottstarbucks, which was formed in the wake of the Starbucks story - because "a small number of people [can] activate and ferment dissent among another group".

But is tax shaming justifiable?

Amazon, Starbucks and Google are by no means unique in minimising their UK tax liability. And individuals often try to lower their own tax bill by exploiting rules in inheritance tax, or gifting to charity.

Start Quote

Is it remotely plausible that Google, Amazon and Starbucks would suddenly emigrate and stop trying to sell as much as possible to British consumers?”

End Quote

Bridgewater says large multinational corporations have been using various methods of being "tax efficient" for decades, and it is "probably sound business practice".

"The issue arises when we feel that a company has crossed a line and what it does to be tax efficient is morally, if not legally, inappropriate," she says.

For a lot of companies, it is about fairness, according to Simon Walker, director general of the Institute of Directors.

"It is very frustrating for many companies who pay large tax bills that some multinationals are able to avoid doing so.

"The solution must be simplifying the tax system, not simply hectoring from Westminster. If these firms are immoral to take advantage of tax loopholes, then politicians are surely immoral for creating the loopholes in the first place. Taxes should be simpler to cut down on avoidance and relieve the burden our complex tax code puts on companies who do try to do the right thing," he says.

The director-general of the CBI, John Cridland, agrees the crux of the debate comes down to fairness.

"A company may be making good revenues but pay lower amounts of tax for completely legitimate business reasons. But if it's doing this by using so-called 'black-box' arrangements, where transactions are designed for no commercial purpose at all, other than to avoid tax, then the CBI does not condone it, even if it is legal," he says.

He says if the government wants a different result from the tax system, it must change the rules.

The pressure to do so has rarely been greater.

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  • rate this
    0

    Comment number 94.

    Best way to bring it to their attention is vote with your feet and don't give them your business if you feel that strongly about it. Me - I don;t like Starbucks so never go there, can't abide the greedy attitude of Tesco's so don't shop there etc

  • rate this
    +2

    Comment number 93.

    75.Dave Thompson
    Corporations pay less tax. Less tax means more profit. More profit means greater returns for shareholders...
    ==
    Yeah right.

    So, if nobody paid any tax we'd all be so much better off?

    Ummm except we'd have no NHS, Defence, Police force, Fire service, Education system,...

    Naive or what,,,

  • rate this
    +1

    Comment number 92.

    Don't get the "we can't name and shame because of taxpayer confidentiality". The companies have to publish accounts which I thought were in the public domain?
    I've just bought books online from somehwere other than Amazon. And I won't be buying anything at Starbucks either.

  • rate this
    +2

    Comment number 91.

    #46 We have a single market but not a single tax (or legal) system within the EU, nor within the Eurozone. Ireland has traditionally used low Corporation Tax to encourage inward investment (12.5 % ?)

  • rate this
    +1

    Comment number 90.

    Starbucks must offer free coffee, buns etc to all UK customers for the next 15 years, they can sign "sorry" on top of every coffee

  • rate this
    +5

    Comment number 89.

    Meh. The Government have no power here.

    We do, however.

    I am going to switch my bank account. No Starbucks. Nothing from Amazon. I don't care if they do think again. They should have thought first time round.

    Don't wait for Whitehall and Parliament to change things - we can do it ourselves, if we want.

    And that, folks, is democracy in action. Peace, all! :)

  • rate this
    +2

    Comment number 88.

    @brian7mcdee
    I don't know about you but I do avoid paying tax that I don't need to. I have an ISA, do you?
    There are many tax avoidance schemes that normal people use, the majority of them paid for and sold to us by the government to reduce the amount we shouldn't have to pay if eligible.
    It's just the scale that is different.
    You should never pay what you don't have to.

  • rate this
    0

    Comment number 87.

    What happens in other European countries? Have they found ways of tackling these tax dodgers while we've been welcoming them with open arms and generous tax regimes?

  • rate this
    +59

    Comment number 86.

    I totally agree with the other comments on here regarding Apple. How these people are managing to get away with only paying 2%, while at the same time avoiding media scrutiny is beyond me.

    BBC put down your iPhones and do your job please.

  • rate this
    0

    Comment number 85.

    There is a very simple way to sort this out, introduce something akin to PAYE for every company, and use the VAT reporting process to collect it. Hence, for every £1 they receive in income, they automatically get docked a certain %. That's how the the vast majority of us pay our taxes with no opt-out, so why can't companies do the same as us?

  • rate this
    +5

    Comment number 84.

    There is an interesting slant on these stories, as they only focus on not paying corporation tax. There are a lot of other taxes that these companies are paying. On that £400m, 20% (80m) will go on VAT. There's then the income tax (+NI) paid by all the employees and the company. Then there are the rates on individual stores. The list goes on. To say they don't pay tax isn't strictly true.

  • rate this
    0

    Comment number 83.

    Can someone please explain Googles £395m turnover? I know for a fact that is only a fraction of their turnover. We moan about countries that protect themsleves but look at countries like UAE who make sure that any company setup there is part owned by it's people. I know they have oil money so it's a different scenario. But the companies above would be here regardless of the tax they have to pay.

  • rate this
    0

    Comment number 82.

    Ashley#47. My point - many countries have low corporate tax rates to encourage new business. It is not illegal. There are 'british' companies that do the same. What needs to happen is some clear rule that justifies the location of the 'HQ' -to avoid these becoming just tax havens. Residence of CEO,CFO maybe?

  • rate this
    +1

    Comment number 81.

    i dont understand why all the fuss about people who are NOT breaking the law. If you dont like the law CHANGE IT!. Simple!

  • rate this
    0

    Comment number 80.

    Hands up! I avoid tax - I have an ISA; I have a 'tenants in kind' clause signed up. Guilty.
    Get off the envy wagon and push for exclusionless simplicty and transparency. Especially in the area of VAT among the 'self-employed' neighbours that we all know about.

  • rate this
    +3

    Comment number 79.

    One of this government's greatest achievements has been to change the perception of taxation from an unavoidable evil (death and taxes...) to a virtuous moral requirement.
    In my view, the morally bankrupt in this situation are the politicans who have the power to change the law, have known about these tax avoidance systems for years and have done nothing about it.

  • rate this
    +28

    Comment number 78.

    I don't understand this argument that if you close loopholes these companies would stop selling in the British marketplace.

    1 It's a short sighted and perverse company that would give up its profits entirely to save on tax.

    2 If that short sighted then they should not be operating in British markets. Extraction of wealth to be sent overseas is something the British economy could do without.

  • rate this
    -9

    Comment number 77.

    Who cares?
    If Amazon don't pay tax, that means their pricing can be lower than other stores. That saves me money as I shop with Amazon.
    Would I see any benefit if the Govt got an extra 4 billion quid in tax from them? No, it would be given away as foriegn "aid".

  • rate this
    +1

    Comment number 76.

    Amazing how little press Vodafone have gotten about this given a few years ago they were fighting tooth and claw against HMRC on this very subject. Perhaps we should not be jingoistic about this but look at all of the large corporates and their shady tax affairs.

    A tax, maybe deferred for start-ups, on revenue rather than profit would seem like a nice leveller if only international treaties allow

  • rate this
    -10

    Comment number 75.

    Corporations pay less tax. Less tax means more profit. More profit means greater returns for shareholders. Greater returns for shareholders means more money for various investment funds. More money for pension funds equals more comfortable retirement and more money for investment funds mean education for your children.

 

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