Can a reasonably well-behaved country with few, if any, enemies, become an international pariah? Can a country that has pursued neutrality, contributed much to the UN and taken diplomatic political correctness to asphyxiating heights, come crashing down and become shorthand for mendacity, evasiveness and intercontinental tax avoidance?
These are questions we should ask ourselves as the international backlash against the likes of Starbucks, Google and Amazon’s tax avoidance policies spilled over in Britain last week.
The ubiquitous Starbucks was forced into a very public climbdown on how it operates its tax affairs. This was particularly galling for a company whose PR machine appears almost “happy clappy” in its efforts to appear on the side of the angels when it is, in fact, a large franchising conglomerate going about the entirely reasonable capitalist business of gaining market share relentlessly.
The carefully crafted image became somewhat tarnished when it was revealed that since 1998, Starbucks has only paid Â£8.6m in tax to the UK government in the 14 years it’s been operating in Britain.
This derisory figure amounts to about a fortnight’s turnover of its 800 outlets there. Its executives made fools of themselves in front of a parliamentary subcommittee the other week and, after that, it was only a matter of time before the company did something.
The public’s mind had, consequently, begun to focus on something rarely discussed in the UK: the tax affairs of large companies. According to the ‘Financial Times’ “activism against tax avoidance is on the rise across Europe”.
Yesterday, in the US, two huge UK banks, HSBC and Standard Chartered, were fined $2.6bn for breaching money-laundering rules by moving money around their various affiliates. Granted, these two cases are very different but what they reflect is the impact of public pressure on the behaviour of tax authorities.
The Starbucks case is about winning the battle for the public’s mind. The corporates and their shareholders will want to have as much latitude to avoid tax as possible. Pro-business politicians will line up behind this position, terrified to point out that the richest corporations pay a rate of tax that is far less than the poorest employee of that corporation for fear that the corporation will get upset.
In the case of Starbucks — given that it is selling coffee to thousands of employees and if it hasn’t a retail presence it has no business — the notion of it upping sticks and going to cheaper destinations is out.
Therefore, the nub of the issue is what it does with its money once it has sold you a coffee, where does it send it, where is it registered and why is it leaving the country where it generated the turnover. In terms of morality, it is clear that the company should pay tax in the country where it raises the revenue which, in this case, is the UK.
The debate was played out on BBC’s ‘Newsnight’ last week. It pitted a woman from a small NGO and a pastor against a corporate economist and a tax expert. In terms of optics, which are all-important to the spin doctors who try to massage the message and are paid handsomely by the tax-avoiding corporates, the notion of an articulate young woman from an NGO and a committed Christian talking morality is precisely the conversation the media manipulators didn’t want to hear.
Starbucks opted to cough up a little, but when its UK chief executive said it did this because “Starbucks listens to its customers”, after the puke bucket passed to your left, you could see the battle lines drawn again.
What it is failing to realise is that the world has changed since the global financial crisis. It is not business as usual. Great events change perceptions and one of those perceptions is that companies — particularly multinationals — have got to be respectable corporate citizens, and part of that is paying a fair share of tax.
Now the theatre of this new conflict, between the interests of citizens and the interests of corporations, focuses on the behaviour of corporations — but this will change. In time, the focus will shift to those jurisdictions that facilitate tax avoidance. This is where Ireland comes in.
What sort of global citizen is the country that actively markets an aggressive beggar-my-neighbour tax policy as its main plank of industrial policy? Up to now, in an era of as little regulation as possible, this may have been seen as a victimless policy. But, now, governments all over Europe — in France and Germany in particular — are responding to public pressure and beginning to agitate for common tax policies.
In the US — the country that arguably loses most from our tax loopholes — the left of the Democratic Party have for years urged their legislators to police the tax activities of its multinationals more closely. In a world of the “fiscal cliff” when the US will be looking to raise revenue to close its budget deficit, do you not think a newly liberated, second-term President Obama will examine this area?
In short, the Starbucks case could be the tip of the iceberg. We may be witnessing the beginning of a mass social movement against large corporations’ tax ambivalence. This is the type of moral outrage that tips into a movement. If it takes hold, the first in the firing line will be the companies and their shareholders. Next up will be the countries that give refuge to such tax fugitives and where will we be then? Pariah or great little country?
David McWilliams’ new book ‘The Good Room’ is out now