Reuters has called Starbucks out on their accounting tactic that sees them report a loss to the taxman while boasting healthy cashflows to investors. From the article, “Over the past three years, Starbucks has reported no profit, and paid no income tax, on sales of 1.2 billion pounds in the UK.”
Of course, our coffee kings from Seattle aren’t unique in their cunning. The Sunday Times recently ran a piece that stated Google, Apple, Facebook and Microsoft all employ similar tactics to divert profits in contrived tax structures. As multinationals they too can shift revenue perfectly legally to a network of offshoots and avoid taxes. Microsoft moved $21 billion in this manner between 2009 and 2011 avoiding $4.3 billion in taxes. Google raked in more than £2 billion in British revenues last year and paid just £6 million in corporation tax.
There’s a 1% tax hit in Puerto Rico compared with a standard corporation rate of 35% in the US. Ireland is just 12.5%. Of course, there’s an obvious duty to maximise return to shareholders but there’s an equally obvious affect on the macro economy. In the 1950s, American companies accounted for 32.1% of the federal tax take but by 2009 that proportion had plummeted to 8.9%. The painful seesaw is a shift in burden from the private sector to the private individual as their total of federal tax receipts have risen from 10% to 40%.
The same paper ran a polar report on its front page about David Harding, Britain’s highest earner and his non-Jimmy Carr move to publish his tax details. Mr Harding, founder of the hedge fund Winton Capital Management paid £34m in tax on his £87m income – the bulk of which is in dividends. In the piece, Mr Harding said, “We need to run things in such a way that if The Sunday Times runs all our innermost secrets five years later we can still hold our head up in our home villages and our families.” If only Mitt Romney had felt the same a few years ago, eh?
We’ve got chalk and cheese on the spirit of taxation here but what is the Chancellor to do? Online is proving to be a larger and larger black hole for tax, not only with the giants of the tech world but as ecommerce takes a larger share of the retail pound. One Kiddicare turning over £100m+ online instead of scores of physical shops selling the same amount of prams and high chairs means fewer staff, less national insurance, less business rates etc. This is about far more than warm or cold pasties – the trend is undoubtedly less money in the coffers of Number 11.
As the Chancellor is powerless to change the CSR attitude of Starbucks et al, will they and the incessant drive to online retailing mean a harder time for the offline world – with fuel, beer, vehicles, PAYE and VAT etc to see a greater-than-normal lift in tax? Answers in the comments, or the side of an untaxed Americano.