Troy Alstead the chief financial officer for Starbucks was one of three executives from transnational companies who were called to explain to a parliamentary committee yesterday why they did not pay enough tax in the UK.
Amazingly Starbucks managed to make a loss from it’s UK operation on 14 of it’s 15 years trading in the UK – amazingly no one has been fired for what appears to be some really bad management. Unless of course you are remitting your profits to a low tax or lower tax regime. On closer inspection the Parliamentary committee chaired by Margaret Hodge could see that any profits made in the UK were used to pay royalties to the Starbucks European headquarters in Amsterdam where they could take advantage of a special tax arrangement made with the Dutch government in relation to coffee trading.
Similarly Amazon had located its European headquarters in Luxembourg to reduce their UK tax liability and Google is based in Ireland. It has long been established practice for transnationals to locate their businesses to reduce their tax liability – however when does the obligation to maximise profits for shareholders begin to impinge on the moral and ethical responsibility to remit tax to the countries in which a company operates?
When asked by the committee what proportion of Amazons European profits derived from the UK Amazon’s Andrew Cecil responded by telling the committee that analysis of this type was not made or at least he did not have it to hand. This resulted in derision and disbelief from the committee, who questioned his response as it was felt that this sort of analysis would be central to Amazons planning. More importantly was possibly central to the businesses tax planning which has resulted in Amazon paying no UK tax on its £3.3bn UK sales last year.
When Google’s Matt Britten took his place in the hot seat it was a breath of fresh air – he admitted that Google located in Ireland to take advantage of a corporation tax rate of 12.5% rather than pay the UKs 24%. He went on to tell the committee that Google reduced it’s liability world wide using Bermuda to shield income from the intellectual property and patents owned by Google.
Already there have been investigations made and there are on-going investigations into businesses operating in the UK, but avoiding paying UK tax, this has resulted in Starbucks reducing royalties paid by their UK operation and George Osbourne closing a tax loophole for goods dispatched from the Channel Islands. (See Mail On-line 9th Nov 2011)
Margaret Hodge finally spoke her mind to the three executives pointing out that all of their businesses relied on the infrastructure provided by the UK government and probably paid many of their employees the minimum wage allowing UK taxpayers to pick up the bill for additional tax credits and welfare payments.
Clearly there has to be a solution to ensure that the UK government receives appropriate taxes from businesses operating the UK – but how this will be achieved while transnational businesses aggressively pursue policies to avoid taxation. We do not want to introduce draconian measures and controls – and in deed probably could not under EU law – but also there should be an obligation for ‘fair dealing’ and clearly Starbucks approach is far from fair.