Don't tell us about your ethical coffee beans or your carbon footprint, and you can stuff those recycled cups. What we want you to do is to pay more tax, right here and now. That is today's message for multinationals – that charity begins at home, and if you even hint that Britain is your home, you can prove that by paying up.
The stark message came from the House of Commons Public Accounts Committee which described the tax paid in Britain by several U.S. multinationals, including Starbucks, Amazon and Google as an "insult." The MPs called their tax avoidance practices "immoral" and dismissed the companies' attempts to explain their tax affairs as "unconvincing and evasive." To add injury to insult, it emerged this morning that the Tory government intends to crack the whip over foreign companies, arming HM Revenue and Customs with a budget boost of £77-million ($123-million) aimed at catching tax avoiders.
For Starbucks, the attack has come out of the blue. The Seattle-based company is in extreme damage limitation mode. Calls for a boycott have emerged, after it was revealed that Starbucks paid no tax last year and as little as £8.5 million since 1998, despite billions in sales. In an effort to quell a potential customer rebellion, Starbucks revealed over the weekend that it is in discussions with the HM Revenue and Customs and the Treasury over its U.K. tax affairs.
Starbucks said it had listened to its customers and employees and had decided that "to maintain and further build public trust we need to do more." In the circumstances, that seems to mean that Starbucks has made the extraordinary decision to pay more tax than it believes it strictly owes. Starbucks will "do more" not because it was caught cheating (Starbucks is doing nothing illegal) but because the public (or the mob, depending on your point of view) has decided that Starbucks should pay more tax.
In Britain, we are witnessing tax policy invented on the hoof and by public opinion. Once upon a time, you only paid what tax you owed and not a penny more. If you could arrange your affairs (by allocating costs and revenues to high or low tax jurisdictions) such that you paid less tax, that was deemed okay, as long as you did not conceal or tell lies.
That happy heaven of tax avoidance could soon be history. Tax advisers elsewhere should pay heed to what is happening in Britain because it will soon be arriving where you live. The discovery that Starbucks is paying less income tax than its baristas is leaving a taste more bitter than a double espresso in the mouths of its customers. Next Saturday, a group campaigning against government budget cuts, UK Uncut, is threatening a day of action, turning coffee shops into impromptu creches and drop-in centres for the homeless.
A pack of rugrats wrecking the peace of your morning mocha is bad enough but the Conservative government, which once believed that tax cooperation was anathema, is now calling for international action to curb tax avoidance. British governments have consistently opposed efforts by the European Commission to create a common tax policy, arguing in favour of tax competition. Those days are apparently over, and it cannot be cynically explained only by the Chancellor's urgent need to find extra revenue to balance the country's books.
The public have said they are tired of globe-trotting multinationals; people want commitments, both social and fiscal, from businesses that seek to implant themselves in a community. It is part of what is sometimes called "the licence to operate," a phrase often used to describe the community development projects undertaken by multinationals in poor countries where government is weak. That idea is now being coopted to describe the relationship between Starbucks and the United Kingdom.
The notion that tax is a moral measure and not just a political bargain is hugely controversial and potentially dangerous for the private sector. Companies are obliged by law to reduce their tax burden for the benefit of shareholders. Taken to its logical conclusion, adopting an ethical taxation policy without seeking shareholder approval could expose companies to extraordinary claims of breach of fiduciary duty.
What we are witnessing is a fundamental redrafting of the social contract between business and the state. There is, however, no point in trying to close this Pandora's box – everyone with an axe to grind about the behaviour of big business is looking inside. The contents may prove to be embarassing indeed.
Carl Mortished