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
    +3

    Comment number 534.

    What our glorious Westminster politicians and the BBC will not tell you is that the current tax laws allowing private companies to avoid paying tax are all part of the great European shambles that gives them the right to treat all the European Union as one country. Thus making it almost inevitable companies will choose the EU country with the most generous regime to pay their taxes.

  • rate this
    +2

    Comment number 533.

    I think suggestions for collecting tax at point of sale are a good idea - however, not at the expense of the consumer, and that's the part that's hard to implement, although companies loading the price to cover the tax should see a fall in sales. Those paying tax as they should wouldn't need to raise prices, and would undercut them. It takes away the opportunity for avoiding/evading tax.

  • rate this
    +4

    Comment number 532.

    Tax avoidance shaming is wrong. The real shame is that the British Government cannot collect taxes properly and has not been able to do so for a long time. It is not up to the private sector to work out how much tax to pay, nor is it right to expect them to pay their bill and then add a bit more on just in case the tax man calculated it incorrectly. The tax system in this country needs an overhaul

  • rate this
    +1

    Comment number 531.

    #522
    MP's expenses should include travel costs and a travelodge if neccessary to stay overnight. They should not get all other goodies like second homes etc, whilst many struggle to afford their first.

    Regarding tax evasion, I think it is morally wrong for large companies to avoid corporation tax, however regarding personal tax I can understand millionaires dodging unfair progressive taxation.

  • rate this
    0

    Comment number 530.

    @513 Brilliant idea, make companies cease trading and put all those employees (those who did nothing wrong) out of work reducing the amount of NI conts both ee and er and the PAYE tax collected.
    Taking 40% of cash over the counter would mean that prices would go up as the company still has to pay all its overheads, utility bills (inc tax) business rates, employer NI conts etc

  • rate this
    +1

    Comment number 529.

    @515. Liam "Frogspawner - Showing a lack of understanding of the tax system. A self-employed individual is NOT taxed on income but PROFITS!."

    I understand that the current tax system (and legal system, regarding these 'Companies') is BROKEN.

    We are discussing how to fix it, aren't we?

    That's my suggestion - treat Companies (and Self-Employed) just like anyone else. Simple.

  • rate this
    0

    Comment number 528.

    So let me get this straight:
    A company employs people at a rate THEY accept, they buy a base product, manipulate it and sell it at a vast mark up and make huge profits. They employ accountants to calculate their tax liability within the scope and law's of the UK.
    It is then deemed insufficient by the politicians who created the tax laws in the first place. Immoral, Nah.
    Envy, pure envy

  • rate this
    +3

    Comment number 527.

    How many years have politicians had to sort this out? Come to that, if politicians were any good at all EVERYTHING would have been sorted out years ago and the country would run like clockwork (sorry, I forgot about EU agreements!) If Milibrain blames anything else on the coalition I'll scream. Time to put professionals in charge!

  • rate this
    +3

    Comment number 526.

    472. Mightblooze
    For your information, PAYE is paid by Starbuck's employees, VAT is paid by their customers, the infrastructure is paid for by UK tax payers, Starbucks are paying nothing!

  • Comment number 525.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this
    +2

    Comment number 524.

    519.Philip C
    1 Minute ago
    Frankly I think BBC are being dishonest in the way they are reporting this by saying what companies turnover is and how little tax they pay.
    -----------------

    I agree, but its not like the BBC have ever had an agenda when it comes to reporting news right?....

  • rate this
    +1

    Comment number 523.

    Mainsail57.

    No, No, No. Theses wretched fat cats are getting away with not paying tax on their EARNINGS and PROFITS. To increase the tax take via increased sales tax won't take a penny off them - only off you and me.

    The answer is to tax the money transferred out of the country and allow justifiable tax refunds at Inland Revenue's discretion.

  • rate this
    +4

    Comment number 522.

    "501.AndyC555

    Perhaps politicians should be embareesed into claiming as little on expenses as possible"

    Yes, indeed they should. Not in absolute terms (an MP from Cornwall us justifiably going to have more expenses than one from Surrey), but in terms of claiming actual expenses - do they really need to eat/meet their pals in a restaurant when they have a nice taxpayer-funded second home?

  • rate this
    +2

    Comment number 521.

    @509 Thats 12 years of tax evasion under a Labour government...

    What Starbucks et al have done is tax avoidance and is completely legal.

    What these companies are doing is avoiding corporation tax. They do, however, provide employment, which provides income tax, national insurance and VAT, which are probably bigger contributors to the govt than corporation tax

  • rate this
    +3

    Comment number 520.

    Tony Blaire has ruined this country. He was never a labour man. Uncontrolled immigration. Low wages for working people. Polish immigramts everywhere. I'm Not racist. I''m learning German and French It's about where you pay your taxes.in the same tax area.

  • rate this
    +1

    Comment number 519.

    Frankly I think BBC are being dishonest in the way they are reporting this by saying what companies turnover is and how little tax they pay. Tax is payable on PROFIT not turnover. It is possible to have huge turnover and make losses which of course would mean no tax. Unless BBC report companies profit we don't know if these big companies are being dishonest or not.

  • rate this
    +2

    Comment number 518.

    This is totally ludicrous.

    Our politicians are attacking & condemning businesses for doing what our politicians incompetantly designed & VOTED FOR in parliament.

    Why are we paying so many £billions for so called experts etc when they couldnt competantly arrange a p up at a brewery.


    Tax avoidance is 100% PURE designer avoidance, designed & instituted by UK government.

  • rate this
    +2

    Comment number 517.

    If we can't get them under the tax avoidance system, then perhaps a slight change to the "money laundering" rules might be in order. Movement of large sums (say a £50,000 threshold) overseas in order to avoid tax could be made culpable. Certain city types could well fall under this scheme as well.

  • rate this
    +2

    Comment number 516.

    500.Mightblooze
    You don't understand how margins and VAT work then do you. The selling price to the customer is inclusive of VAT but the accounted for price is made up unit price + margin (the company's bit) + VAT (not theirs). The VAT is not part of their margin and is merely collected on behalf of HMRC.

    I didn't mention other business taxes paid as they're part of a separate issue.

  • rate this
    +2

    Comment number 515.

    Frogspawner

    Showing a lack of understanding of the tax system.

    A self-employed individual is NOT taxed on income but PROFITS!.

    So they are NOT treated differently in many respects.

 

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