This is a great story. The government has suddenly decided to come down hard on company’s not paying tax – shock horror.
Have any laws been broken?
The amazing thing here is that nobody has broken the law (allegedly). We have some offshoring and some transfer pricing, and some nice tax havens, but these companies employ the most skilled tax specialists, internally and externally, to get it right, and minimise their tax bill, for the benefit of their shareholders. I think this is what they are supposed to do?
Paradoxically, they are more aware of the power of their brands, Corporate Social Responsibility and doing their bit for the community than many of us will ever be. What is it that has come along and caught them out? The power of the media and us, the people. (See our previous blog on People Power).
The deflection from government has been incredibly skilful. The people who have abided by the rules, are now the bad guys and desperate to pay some more tax to try to repair the damage! Starbucks have offered £20m and it has been turned down as derisory.
Unintended consequence
There is a lovely unintended consequence here: Whitbread that great old British company that used to brew beer is seeing a continued uplift in its share price, bucking the trend of most of the FTSE100. This is partly because it owns Costa Coffee, which is benefitting from the public backlash against Starbucks! Like for like sales increased by 7.1% in the 13 weeks to November 29th – pretty good in today’s retail environment.
Delicate balance between Corporation Tax and Inward investment
It is a fine line. We want attractive rates of Corporation Tax, hence the drop to 21% in the autumn statement, to attract more big companies to the UK, so that they employ our people who pay tax and NIC on their earnings and then VAT on lots of the purchases they make (with these taxed earnings)! These people are also not a drain on the public purse, in terms of unemployment and other benefits so there is a nice big upside to having these people here, even if they pay no corporation tax.
As Eric Schmidt, the chairman of Google, has just been quoted as saying, he is ‘very proud’ of the company’s tax structure, and said that measures to lower its payments were just ‘capitalism’.
The business Secretary, Vince Cable, was unimpressed, and told the Telegraph ‘It may well be (capitalism) but it’s certainly not the job of governments to accommodate this’. I don’t quite understand this, because that is what exactly what they have done!
Who is guilty of breaking the law?
I also think there is a fair amount of hypocrisy here. We know for a fact that a number of pretty influential groups have broken the rules over the last few years, for example:
Bankers – LIBOR, Swap rates, money laundering…
MPs – Expenses, Peerages, cash for questions…
Media – Phone hacking, false accusations, celebrity hounding…
And possibly even anyone who has paid cash for a product or service to save a bit of VAT?
Strangely, the people who are being vilified (by many of the above) are the ones who probably have done nothing more than abide by the rules!
What do you think?
Image by: Switchology