STARBUCKS took a calculated risk when it agreed to pay a total of £20m in taxes over the next two years to douse the flames of controversy that have engulfed the company in recent weeks.
It seems a bizarre solution to the situation, but one that – in the eyes of the general public, at least – could heal its battered reputation, if only partially.
Despite its potential to entice previously furious customers back through its hundreds of doors across the UK, it should not be a conclusion that satisfies HM Revenue & Customs or anyone.
Instead, HMRC should calculate what it thinks it is owed and charge it, and Starbucks should pay it. Tax is not voluntary, and the taxman should not be in the business of accepting extra, voluntary, payments.
Some might say the taxman should take what it can get, especially given the national attitude to tax avoidance. But most advisors do not share that view, and point to the chancellor's decision to drop the corporate tax rate by percentage point in his Autumn Statement. Britain is still doing its level best to attract investment, and its attack on avoidance schemes should not impinge on that – arguing about collecting corporation tax while seemingly heading in the direction of 0% as policy seems bonkers.
The bluster seen in the media, by politicians – particularly the Public Accounts Committee – has done little to further the public's understanding of the issues involved, let alone that of the politicians. Their adversarial approach and use of emotive language has largely confused matters, with witnesses regularly admonished before they were afforded the chance to say their piece. That isn't to say, though, that some of the evidence – or lack thereof – wasn't shoddy, as we saw in the case of Amazon's Andrew Cecil.
Starbucks, though, should not be fooled into thinking this issue will simply go away, just because it has pledged to pay a supposedly 'accurate' figure into the public purse, not least because HMRC has not even said it will accept that money. Even if it does, a one-off deal does not mean a wholesale change of practice has taken place, and should not placate those who have taken umbrage on this point of principle.
Ultimately, though, it appears that despite the hysteria around the issue of avoidance, the UK is trying to strike a balance, and if it does, it will go a long way towards the recovery.
Calum Fuller is the tax correspondent for Accountancy Age and Financial Director
How about details as to what specifically Starbucks did?
Posted by: Greg M, 14 Dec 2012 | 02:25
Everything on this issue that is filtering into the mainstream media gives a very distorted view of the tax system and the relationship between taxpayers and HMRC.
Surely the point is that if a company or individual can legally organise their affairs such that they pay little or no tax then good luck to them. If the legality of those arrangements is questionable then HMRC have a steadily growing raft of powers to go after them.
The system is certainly not voluntary and I do not recall a section on "morality" in my last Self-Assessment.
Posted by: Richard, 15 Dec 2012 | 09:14
May be! In one’s individual understanding, the point for debate is whether or not the Revenue (taxman) can compromise or settle for any amount with a taxpayer , in a given case; particularly if, what is due to the exchequer strictly as per the law is, as estimated, more OR significantly more. But then, in practice, has not one heard of such odd instances, in which there is a point of law or substantial point of law involved, and on which there could be tenable but mutually contradicting views being taken, 'objectively? One should think that it has always been a difficult task to weigh the pros and cons of either view. And simply left with Hobson’s choice, is eventually inclined to go by what is considered prudent more from a PRAGMATIC VIEWPOINT, INSTEAD OF FROM A PROFOUNDLY ETHICAL STANDPOINT. IN THE ULTIMATE ANALYSIS, PERHAPS, THE REVENUE MAY BE JUSTIFIED, THOUGH NOT FULLY, IN KEEPING IN FOCUS THE POTENTIAL LITIGATION IN COURTS, AN INCONCLUSIVE ONE AT THAT; IN PREFERENCE TO STICKING TO A WHOLESOME ETHICAL VIEW . ECONOMIC EXPERTS' OPINION, AS EXPERIENCE SHOWS, OFTEN OUTWEIGHS A PURITAN'S OPINION.
Debate may go on and on.. to infinity , in the same breath /vein !
Posted by: vswami, 17 Dec 2012 | 01:40
I don't understand why Starbucks are taking this apologetic line - surely they should quantify the VAT, employer's and employee's National Insurance and Income Tax Paid and state their total no. of employees in the UK - at least they're not claiming unemployment benefits!
Posted by: Ian Johnston, 17 Dec 2012 | 13:04
I didn't learn a thing, except apparently Starbucks did something wrong and the author either doesn't know or doesn't understand the details, so he avoided them.
Posted by: RazorHawg, 17 Dec 2012 | 14:28
I don't think £20m tax would heal the damage even partially. If Starbucks volunteers to pay that amount of tax, one may think that Starbucks has always had the obligation of paying tax, but has been dodging its obligation. Now, it is under the scrutiny, that's why is considering paying its tax. You cannot give a figure how much you are going to pay tax next year, nevermind the year after. The amount of tax payble depends on your income. That's so obvious. The truth is the current law is so flowed in favour of businesses like Amazon, Google, Vodafone and Starbucks to name a few.
Posted by: Reza Ebrahim, 17 Dec 2012 | 17:07
It seems like this could be similar to an estimated tax payment like the US system. What exactly happened? Did they just completely avoid taxes for a number of years? More info would be helpful.
Posted by: RJ , 20 Dec 2012 | 16:48
Surely all Starbucks have done is to decide to adjust their intra-group transfer pricing to put sufficient profit in the UK (and of course take it out of another jusisdiction) to ensure that its UK corporation tax liability will be £20 million.
Posted by: John Grogan, 08 Jan 2013 | 11:41
You may also like
If budgeting is to have any value at all, it needs a radical overhaul. In today's dynamic marketplace, budgeting can no longer serve as a company's only management system; it must integrate with and support dedicated strategy management systems, process improvement systems, and the like. In this paper, Professor Peter Horvath and Dr Ralf Sauter present what's wrong with the current approach to budgeting and how to fix it.
In this white paper CCH provide checklists to help accountants and finance professionals both in practice and in business examine these issues and make plans. Also includes a case study of a large commercial organisation working through the first year of mandatory iXBRL filing.