Starbucks’ calculated tax risk backfires

by Calum Fuller

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13 Dec 2012

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Starbucks

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

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