Blogs

Last call for Starbucks. Your flight is about to depart

27 January 2013

2:11 PM

27 January 2013

2:11 PM

A friend of mine who has worked in the City all his life, and is by no means a leftist, can still explode with rage at the nom-doms and corporations, who expect to stay in Britain without paying tax. When their representatives say they will leave if the government taxes them, he replies

“Fine. If you don’t like paying the taxes the rest of us have to pay, there’s a big road heading out of London called the M4. Take it, and hang a right at the sign marked Heathrow.”

He understands that the notion of the state granting tax exemptions to fortunate classes ought to have died when the French revolutionaries abolished the privileges of the noble and clerical estates in 1789. So does Jesse Norman, whose conservative assault on crony capitalism you can read here, and the other intelligent Conservative I write about in my Observer column this week. So, apparently, does David Cameron.

Yet I remain astonished by the number of conservatives who defend the right of the plutocracy to escape the taxes the little people must pay. Go to this list of press releases from the Taxpayers’ Alliance, and you will notice a startling omission. The most hypocritical campaign group in Britain has issued barely a word of protest about corporate and plutocratic avoidance. It complains about government waste, but keeps silent about the burdens the super-rich place on the people it so presumptuously claims to represent.

In the past, right-wingers argued for lower taxes and a smaller state and left-wingers argued for higher taxes and a bigger state. Both agreed, however, that you had to pay what taxes the state set. If you did not like them, you could campaign for a change in government policy or a change of government.

[Alt-Text]


Now libetarianism, once an interesting anti-authoritarian philosophy, has degenerated into servile money worship, and taken large numbers of right-wing thinkers down with it. Conservative writers cannot see anything wrong with plutocrats gaining an unfair advantage, and do not think about how powerful interests that can demand state bailouts distort markets.

Norman does, and has little time for the conventional right-wing argument that if tax avoidance is legal then no one should complain. We are not talking about a couple moving assets to keep their tax bill down, but vast corporate structures hiding money in piratical tax havens. When the representative of Google spoke to the Commons Public Accounts Committee last year, he explained that his firm paid next to no tax in Britain because its brand was invented in America and its engineers were based in California. He sounded reasonableness personified until MPs pointed out that Google ran its profits through Bermuda, which is neither the birthplace of its brand nor a home to its engineers.

A good rule of thumb in all circumstances is to ask whether you can defend your actions in public. No person or organisation lives apart from society, and if you cannot explain yourself to your neighbours or fellow countrymen and women you are finished. The tabloids are damned because they could not point to one of the stories they obtained by hacking and say, ‘we may have been in technical breach of the law, but because we broke it to find evidence of corruption and the misuse of power, you should thank us.’ The corporations are damned because, even though they were within the law, they avoided taxes with such effort and on such a scale they hurt the society that houses and protects them.

As my City friend would have predicted, now that even David Cameron is condemning tax avoidance, corporations are threatening to leave in a huff. The Telegraph reports that Kris Engskov, Starbuck’s UK managing director, has demanded talks after the Prime Minister said tax-avoiding companies had to ‘wake up and smell the coffee’.

Sources close to the business said that plans announced last year to invest £100 million in new UK branches could be put on hold, meaning fewer jobs will be created.

Mr Engskov has not asked himself why the British should care if Starbucks cuts back on investment or leaves altogether. It has paid £8.5 million in corporation tax, despite total sales of £3 billion. The Public Accounts Committee said Starbucks UK had achieved this remarkable feat by shuffling profits around the world. It is now offering to donate £20 million as a sort of goodwill gesture. (Can we all do that, incidentally? Not pay tax for years then make a charitable donation.) Even if it does, the tax will represent a tiny portion of turnover. From the point of view of the Exchequer, it is a matter of supreme indifference whether Starbucks stays or goes.

You may worry about the jobs of Starbucks low-paid workers. I did until I looked at Marketing Week’s survey of the coffee market, which pointed out that there are many other chains and thousands of independent coffee shops. If Starbucks were to go, they would move into the gaps in the market, and may pay tax too.

There is no reason why Mr Cameron should not listen politely to what Mr Engskov has to say, then point him westwards, and tell him to keep going until he reaches Heathrow.


More Spectator for less. Stay informed leading up to the EU referendum and in the aftermath. Subscribe and receive 15 issues delivered for just £15, with full web and app access. Join us.



Show comments
  • rndtechnologies786

    Good view.

  • AugustLudwig

    Starbucks is a sweet target, but there is a much bigger story. An honest,objective analysis will put some of the better postal codes in the UK into economic risk, however.

    Reuters wrote a good piece here on Starbucks. Note how its auditors, Deloittes, refuses to comment. One should push them for more than a comment.

    http://uk.reuters.com/article/2012/10/15/us-britain-starbucks-tax-idUKBRE89E0EX20121015

  • http://twitter.com/PeterRisdon Peter Risdon

    It’s true that the TPA is too little exercised about tax avoidance and evasion. It’s also true that Nick Cohen and others on the left are too much exercised by this and not enough by the genuinely repulsive, feudal sense of self-entitlement and extravagance that permeates the public sector. When the *left* isn’t worried by the excesses of the ruling class, we really are screwed.

    Starbucks is a good example. They publish accounts and so the size of the controversial transfer payments for coffee from Switzerland and their operating surplus/loss can be seen. Their loss is more than the £20M in transfer payments p.a. – that is, Starbucks really does make a loss in the UK and should not pay any corporation tax. Really – they *should not* pay it.

    This is why they’ve closed the only branch within 12 miles of where we live, here in the sticks. It was loss making. They’re now reconsidering any further investment in their UK business.

    Congrats, Nick and the others who have brought this about.

  • niav

    It’s clear from the article that the author strongly believes that Starbucks should pay more corporation tax.

    However the author doesn’t say exactly how much and how did he reach the conclusion.

    The nasty jab at TPA is unwarranted. They are smart people, they understand that tax is paid according to the law – and the state has huge powers to legislate, investigate and punish.

    If someone is paying none or little tax legally then either there’s no fault, or the fault lies with the state. In this case, unless I see a shred of evidence that Starbucks should pay more profit tax – and left-wing indignation is no proof – I don’t even think there’s a fault.

  • Dogsnob

    It’s all very well Starbucks coughing up when they’ve been put under the spotlight but to me it’s too little too latté.

  • jameshogg

    I think the more interesting question is how you actually stop tax avoidance. Because we are rather stuck if we cannot.

    The reason why unaccountable corporations like Starbucks can get away with dodging so much tax while those who do not have similar luxurious wealth have to pay is that corporations have more legal research at their disposal. Hiring costly, clever tax lawyers to obsessively study every loophole out there is a horrifying thought, because even if the government were to engage in such a legal arms race to close every loophole, it would escalate into a situation where the government would need to go Big Brother on every single penny circulating within and without the country. Having a government keep a database of everybody’s finances is something we necessarily cannot live with… and as a result, the corporations contemptibly live in the space between. Just like money, knowledge is power, but power corrupts, and it is the knowledge acquired by corporations in how to dodge tax that puts them above those who do not have such educational power.

    However, there are probably ways in which the government can safely enforce accountability without intervening in civil liberties. But of course, lobbying is a bitch. A politician putting off tax enforcement generates some hefty incentives indeed.

    And I find it hard to believe in the sincerity of David Cameron’s words – the only reason he is saying that tax avoidance must be stopped at this present time is simply because it is a current hot topic in the media, and he wants to tame the heat of the masses for the time being. Once tax avoidance becomes a boring news story for papers and broadcasters in the face of the next hot topic, things can go back to where they were and Cameron need not put on a show any longer.

  • zimjono

    4. “Mr Engskov has not asked himself why the British should care if
    Starbucks cuts back on investment or leaves altogether.” This is insane.
    Starbucks provide thousands of mainly unskilled job – exactly the group that
    suffers the greatest unemployment.

    5. “It has paid £8.5 million in corporation tax, despite total sales of £3
    billion.” Aaaarrrgghh! You pay tax on profits not turnover and, guess
    what, Starbucks don’t make any. Even if you reverse out the royalty and
    interests payments in question (all of which have had to be cleared by HMRC, by
    the way) they still made a loss last year.

    6. “The Public Accounts Committee said …” that would be the same
    PAC whose chair use tax avoidance strategies to shelter more inheritance tax
    than the amount of corporation taxes in question in Starbuck’s case.

    7. “From the point of view of the Exchequer, it is a matter of supreme
    indifference whether Starbucks stays or goes.” “Norman’s”
    crowning glory. Corporation taxes are the cherry on the cake. The main value to
    the exchequer of corporations is the PAYE and NI they pay – which are typically
    orders of magnitude larger than corporation tax and in Starbucks case will be
    in the hundreds of millions of £.

    8. “You may worry about the jobs of Starbucks low-paid workers. I did
    until I looked at Marketing Week’s survey of the coffee market,
    which pointed out that there are many other chains and thousands of independent
    coffee shops. If Starbucks were to go, they would move into the gaps in the
    market, and may pay tax too.” Sure – there are thousands of independents
    able to make a money and on the same scale of employment as proved impossible
    for the largest and most street wise coffe chain in the world. I take it back.
    This is “Norman’s” crowning glory.

  • PeteCW

    If Starbucks flounce away from the UK, Costa can take over their stores – the coffee is a damn sight better and they’re a British company (Whitbread) who pay their fair share.

    The British consumer therefore wins on all fronts.

  • Jon

    A serious flaw in Engskov’s argument, already hinted at, is that starbucks business is actually being somewhere, unlike that of say a hedgefund for example. Starbucks necessarily need a bricks and mortar presence in the UK if they are to continue to enjoy the profits they make in the UK. This renders his argument spurious at best.

  • Edward Burroughs

    “Now libetarianism, once an interesting anti-authoritarian philosophy, has degenerated into servile money worship, and taken large numbers of right-wing thinkers down with it.”

    No it hasn’t.

  • Cameron Miliclegg

    “the Taxpayers’ Alliance… has issued barely a word of protest about corporate and plutocratic avoidance. It complains about government waste, but keeps silent about the burdens the super-rich place on the people it so presumptuously claims to represent.”

    That’s because spending is the problem, not taxation. At 49%, we spend more time working for our lords and masters, the parasitocracy, than serfs in the middle ages spent working for theirs.

    Sure, cutting the tax-avoidance-mickey-taking would be welcome, but let’s be clear EXACTLY where the problem lies: a vast and parasitic government that, whether Labour or Conservative, continues to spend and waste the nation’s wealth.

    • Ab

      Exactly. The only reason politicians are piling into these companies is in order to divert attention from their direct culpability for the current fiscal mess. Does anyone sane think the politicians give a damn about morality and fair share? They are simply pissed off that their spending spree is being curtailed.

  • zakisbak

    The laws need to change.

  • http://twitter.com/simon5233 simon

    what the article does not grasp is the extent to which govt wastes money and that individuals and companies can justify tax avoidance by claiming they can do much more for society investing the money themselves.Take the late George Harrison who wrote the Beatles anti tax song `Taxman` – Harrison was complaining not of greed and used most of his own money subsidise British cinema,Asian culture in the West and victims of natural disasters like earthquakes.The other thing about the entertainment industry is that an artist or sportsman might just have 1 good year among many years of low income and maximising what one gets from one good year to cover the poor years cannot be wrong providing it is legal.The same may be true of companies who spend a lot on R&D

    • http://twitter.com/Shinsei1967 Nick Reid

      “what the article does not grasp is the extent to which govt wastes money”

      Totally irrelevant point.

      If you want lower government spending or lower taxes or “better” government spending fine but this has nothiung to do with tax avoidance.

      All aggressive tax avoidance does is push up tax rates for everyone else not using aggressive tax avoidance techniques.

  • LB

    Mr Engskov has not asked himself why the British should care if Starbucks cuts back on investment or leaves altogether. It has paid £8.5 million in corporation tax, despite total sales of £3 billion.

    =========

    You’re an idiot.

    Corporation tax is paid on profits.

    VAT is paid on turnover.

    So how much VAT did starbucks pay on turnover?

    • gladiolys

      Starbucks did not pay VAT, they merely collected it from their customers and then, in theory, passed it on to HMRC.

      • LB

        And?

        Corporation tax is collected and paid by Starbucks on behalf of their shareholders.

        The point is valid. If you complain about how little tax is paid on turnover, you have to include all taxes. Corporation tax, VAT, payroll rax, NI, ….

        Starbucks pay a lot of tax. it’s Starbucks that write the cheque.

        The end result, I agree, as with all taxes is a high price that is paid by the end consumer. All of it drives up the price for the end consumer.

  • Whyshouldihavetoregister

    Here’s the thing. Tax avoidance is legal. That’s L-E-G-A-L. Look it up in your Boys’ Big Book of Hard Words, Nick. If you don’t like it, you too can leave – or lobby for a change in the law. Meanwhile, I am boycotting Starbucks for caving in to the scum and fools.

  • http://www.facebook.com/matthew.blott Matthew Blott

    The curious thing about the Starbucks is they’re behaving as if they are a manufacturer. The British market for a Japanese or American car company based here could be tiny so if they left arguably it wouldn’t make any difference to them. And even then they could still sell to the British market. But how can Starbucks sell to Britons if they aren’t based here in some form? They can’t export lattes.

    • LB

      It’s the same a franchise. The franchise operates here, but the royalties go to the owner of the franchise.

  • racyrich

    It might not be ‘crony capitalism’ in that they’re no-one’s crony but it’s certainly not free-market capitalism as I understand it. There’s a huge barrier to entry to the playing field they’re playing on. It’s symptomatic of what we’ve had for decades now – corporatism. The only surprise is that Call Me Dave expresses disdain at it. I guess he doesn’t see a post-politics future involving selling lattes.
    Meanwhile Starbucks claim to make no money in GB. Do they seriously expect us to believe that!? What company invests so much to make no money? Could it be based on hatred of Costa – competition out of spite? As for its benefit to the economy, bollox! Minimum wage workers paying a pittance in PAYE and NI and earning far less than the amount where they cease to be a net burden. Their continued employment must be lowering per capita GDP.

    • http://www.facebook.com/matthew.blott Matthew Blott

      And subsidised by the government through tax credits because their wages are so poor.

      • LB

        Lets make the correction

        And subsidised by the government through tax credits because their AFTER TAX wages are so poor.

  • OldSlaughter

    This completely misses the point about ‘Libertarians’ and ‘Conservatives’. WE WANT THE LAWS CHANGED.

    As a sorta Libertarian, I never asked for the EU and its ability to help achieve such avoidance. But if people are not breaking the law, I have a problem with the law, not them.

    So I don’t worship the money or the plutocrats, I am just not so daft and naive as Nick for condemning people who don’t wish to pay more tax than they have to.

    “Conservative writers cannot see anything wrong with plutocrats gaining an unfair advantage”

    We see what is wrong. The law.

    Nick’s solution, appeal to a sense of what is best for society rather than for playing within the rules and maximising profit. Ummmm. Good luck with that.

    • Druth

      Completely right. A poor article.

  • CaediteEos

    The difference between me, a “little person”, and a big multinational is that I’m stuck on PAYE and don’t have the option of channeling my income through Bermuda. Otherwise I would. Taxation isn’t pleasant – it’s taking people’s money off them and redistributing it. Either you firmly enforce it by law, or it won’t happen. As much as I dislike big corporate tax avoidance, I can’t really say I blame them. How about putting Google, Starbucks et al on PAYE?

    • LB

      It’s called VAT

    • http://twitter.com/Shinsei1967 Nick Reid

      Millions of “little people” aren’t on PAYE either.

    • Cameron Miliclegg

      “The difference between me, a “little person”, and a big multinational is that I’m stuck on PAYE”

      Consider yourself lucky you don’t have to deal directly with HMRC, then.

  • barsacq

    You can only hang a left off a motorway.

  • Curnonsky

    Why pillory these companies for playing by rules they did not make – were they to pay more taxes than they legally owe their shareholders would rightfully be incensed. Are they taking advantage of government incompetence in designing or enforcing tax laws? Whose fault is that?

    And crony capitalism it is not – crony capitalism would mean they are using their connections inside the government to extract special privileges not available to other companies. Have they done that? Or are they being punished by a government they have made to look foolish?

    Consider too what this brow-beating of Starbucks and Google implies: that the tax laws aren’t really laws, merely ever-shifting rules imposed by public opinion and self-serving politicians to be changed at a moment’s notice. What a recipe for real crony capitalism that is – you may be sure Starbucks will be putting a host of well-connected ex-politicians and relatives of same on their payroll to make sure they don’t get caught out again. This is how Third World countries operate…oh wait…

    • Colin

      A very sensible post. If nick is so upset at legal tax avoidance, he should lobby his local MP for a change in the law. After all, the only people with the immediate ability to change anything are sitting in Westminster. And, despite the low integrity rhetoric, I don’t see a rush to make changes.

      • Colin

        I’m also assuming he’s paying the full whack on every penny he makes, wherever and however he makes it. The full whack being a PAYE style full whack.

    • OldSlaughter

      Spot on.

  • http://twitter.com/katebevan Kate Bevan

    Point of information: if you are heading out of London on the M4 to Heathrow, you hang a left, not a right.

    • http://twitter.com/TheRedBladder The Red Bladder

      If you turned right surely you would reach the Slough (of despond)

      • post_x_it

        Um… when you come off a motorway in this country it’s always a left turn. If you want to stay alive, that is.
        But then “hang a right” (or left) is a US expression, where people do turn right off a motorway (or interstate?). Just not at Heathrow.

  • http://twitter.com/Boynielaad Andy Boyne

    “It has paid £8.5 million in corporation tax, despite total sales of £3 billion.”

    I’m no accountant but I do understand that tax is paid on profit, not turnover.

    • Augustus

      Of course Corporation Tax is paid on profits, therefore it defies belief that an organisation operating hundreds of shops in the UK could be unprofitable, yet still be so keen to expand. Therefore it must be earning profits and then doing something to make sure they are transferred to a more favourable tax regime overseas. This shuffling of profits may be perfectly legal, but think of the many millions lost in reputational damage compared to the millions of tax saved.

      • LB

        Unless the profits pushed back into growing the business.

      • http://twitter.com/PeterRisdon Peter Risdon

        They publish accounts – and these show they’re unprofitable even after taking out the effect of transfer pricing on coffee from Switzerland. This is why they’re closing branches.

  • stickywicket

    Quite right.

    There is a point about it being OK to legally avoid tax. But we do need to re-cast the rules to make that harder.

    It would be better if they scrapped many of the taxes and tax laws and made it all much simpler.

    However, even though what Starbucks has done is probably “technically” legal, it does stick in the craw to see them trading coffee in Switzerland and paying outrageous royalties to the US simply to avoid tax. Ditto Google, who are supposed to “do no evil”. Both companies rely on state functions to even exist, let alone prosper – namely the education and healthcare systems for their workers, transport to get their workers to work and their goods to their shops and the rule of Law. If they don’t like paying their share of tax and making their own contribution to society they can bugger off.

    What is even worse is the supposed doyens of free-market capitalism, namely the banks, had to come cap in hand for BoE assistance and Treasury bailouts and still they go on behaving as before even though they are all but nationalised. Yet still they have the ear of those in power. We need a new Glass-Steagal Act to separate the utility banks from the casinos and the bond-holders should be made to pay.

    • LB

      Why? Ah yes. The goal of government is taxation.

      Hmm, why should the goal be cost effective delivery of services?

      =============
      We need a new Glass-Steagal Act to separate the utility banks from the casinos and the bond-holders should be made to pay.

      =============

      So B&B – casino bank not retail? Er, retail

      So NR – casino bank not retail? Er, retail

      So Lloyds – casino bank not retail? Er, retail

      So RBS – casino bank not retail? Er, retail

      So Icesave – casino bank not retail? Er, retail

      So Kaupthingedge – casino bank not retail? Er, retail

      ….

      In the UK, its the utility banks that went under and had to be rescued.

    • http://twitter.com/Shinsei1967 Nick Reid

      If these royalties are truly “outrageous” (I offer no comment on whether they are or not) then they will almost certainly be illegal. Hence this is a case for prosecution and a hefty fine and not merely moral censure.

Close
Can't find your Web ID? Click here