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 114.

    77.go figure
    Lol, you are so funny, cant wait to see how you laugh if the situation comes that you cant get your free treatmeent on NHS, or you have to pay for your kids education, or have to pay for private fire & ambulance insurance, or perhaps pay to fix your car due to it being damaged on unrepaired roads! But your book from amazon was cheap eh!

  • rate this
    +2

    Comment number 113.

    It's stupid to call tax avoidance "good business".

    By depriving the country of tax revenue they depriving the country of funds with which to build better transport links, provide better education, and ensure better healthcare.

    So whilst it may allow them to milk the country of money in the short term, it means no scope for long term growth as the country becomes poorer.

  • rate this
    +5

    Comment number 112.

    I saw people outside Vodaphone, but only ever saw people inside Starbucks. The war on tax dodgers took a definite ceasefire when it came to the Clicktivist's Favourite Wifi Hotspot.

  • rate this
    +1

    Comment number 111.

    I run a small family business and we pay a hefty 24% on any profit we make plus income tax on top for anything we take out. We also pay VAT, Employers NI and business rates. Small businesses are taking the brunt of the tax bill while large wealthy Companies pay little. What if the lowest PAYE income earners contributed more tax than those earning millions every year? there would be outrage!!

  • rate this
    0

    Comment number 110.

    Many of us pay tax via PAYE so it's taken a source. The rest with taxable incomes will come under Self-Assessment - again you make a full declaration of your income and are taxed on it. However out of those, how many would actually elect to pay more tax than they needed to?
    It's no different for Companies. Make employers pay more Corporation tax and they'll either close or move abroad. Simple.

  • rate this
    +5

    Comment number 109.

    71. Toon1414
    "Can those who want companies to pay more tax when not legally required to do so explain how Directors are supposed to comply with their legal obligation to act "in the best interests of the company"?"

    I would have thought it was in the best interests of the company to maintain their brand reputation? But what do I know, i'm just a pleb.

  • rate this
    +3

    Comment number 108.

    All this 'shaming' stuff is nonsense. Either make it illegal or shut up about it.

    Why aren't we shaming people who take out ISAs? They're just a tax avoidance schemes.

  • rate this
    +44

    Comment number 107.

    Go figure
    "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."

    Amazon's competitors pay tax, they lose custom, go out of business. That means less choice for you. Less competition means Amazon can put its prices up, you lose out. This behaviour damanges the market and helps Amazon secure a monpoly position.

  • rate this
    0

    Comment number 106.

    Taxes I'm forced but to pay
    my pay packet shows it OK?
    Corporates of greed
    take your business indeed
    head on back to your home U S A

  • rate this
    +2

    Comment number 105.

    Wouldn't it have been great if Google had been invented in Birmingham, HMRC would have been laughing all the way to the bank. Oh, that's right, it was invented in the US, where it pays astronomically high tax bills. There is nothing even remotely morally wrong with what these companies are doing.

  • rate this
    0

    Comment number 104.

    The crux of the problem is Capitalism itself. It demands greater profits each year.

    However, once you have increased productivity, automated processes, offshored jobs, reduced workforce, reduced pay & conditions, screwed suppliers, put competitors out of business and avoided tax ...where next ? Too big to fail and bailouts ?

    Capitalism is dying.

  • rate this
    +4

    Comment number 103.

    What really bugs me is the fact that when the banks had all these scandals over libor rate fixing etc. and PPI etc. Look at the fines and legal action that got imposed. it was " a slap on the wrist" so to speak. but when people are exposed to benefit fraud then they are fined, jailed and labelled out. There needs top be harsh justice deployed to these tax evaders coz i am paying for their profits

  • rate this
    +3

    Comment number 102.

    It's funny how politicians who themselves use creative accountancy and bend the rules on their expenses to maximise what they can sqeeze out of the tax-payer are lecturing others who are acting within the law about 'morality'. The lunatics are most definately in charge of the asylum.

  • rate this
    +7

    Comment number 101.

    Much like a nurse has a duty to care for their patient, those running businesses also have a duty to do what ever they can to legally minimise their costs and maximise their profits within the law of the country they operate in. It is no different to an individual claiming any allowance they are legally entitled to. If there is blame then it lies in the tax system not in the companies.

  • rate this
    +2

    Comment number 100.

    @69 Dave ... what on earth? You can't imprison people unless they do something seriously illegal (not just because the masses think this is a good idea - anarchy as per Afghanistan). Your VAT proposals are too ridiculous to warrant a response.

  • rate this
    +3

    Comment number 99.

    We all avoid tax where posible, maybe offering the builder "some of it in cash..." for a reduction. How many waiters... put their tips in their Self assessment?
    Their is a thought that rich people can afford to pay more so morally should. Here's the thing I find though, rich people didn't get rich by paying a penny more than they have to or picking up anyone elses bill.

  • rate this
    +1

    Comment number 98.

    84. Re VAT all the companies do is act as a collection agent - we pay the VAT, they collect it and hand it over to HMRC. Tax and NI is paid by employees, not the company, with the exception of employers NI.

  • rate this
    +3

    Comment number 97.

    I have never bought coffee from Starbucks and never will, especially since they erased the nipples from the mermaid in their logo to appease the religious right in the USA. There is no true value in their business anyway, given that coffee has no nutritional content. Perhaps their present tax arrangements accurately reflect this underlying pointlessness in their very existence.

  • rate this
    +1

    Comment number 96.

    I wonder how far you'd get away with registering a head office in the USA, continuing to live & work in the UK, but as a self-employed sole trader under the business name ' Incorporated'; and then trying it on with HMRC.

  • rate this
    +2

    Comment number 95.

    84:

    VAT is paid by the consumer. PAYE is paid by the employee. So is NI.

    Corporation Tax is their liability and they're using every legal trick in the book not to pay, whilst our hospitals, schools and services are closing down due to austerity.

    It's disgusting.

 

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