Leader: Everyone's a loser in Starbucks tax mess

THE STARBUCKS announcement this morning, that it has dished out £5m in ‘corporation tax‘ with another £5m to follow at the end of the year, is fascinating. Well, not so much that part of the announcement, but more some of the detail contained within the comments of the chain’s spokesman.

For starters, Starbucks ‘decided to forgo certain tax deductions’, which seem to include capital allowances and transfer-pricing related benefits.
What makes this is interesting is how it highlights the artifice that is the corporate structure – and that its manipulation allows for decision-making for tax purposes.

The bone of contention is, of course, that Starbucks has been allegedly failing to represent the economic realities of its business within that structure in an effort to lower its tax bill.

But how a government committee can ride roughshod over Starbucks, and subsequently the way in which HMRC tracks corporate (non-?)taxpayers, does all three of those parties no good whatsoever. The Public Accounts Committee has at time times appeared naïve, lacking in tax knowledge, and politically motivated. Starbucks looked like they were trying to slip out of their tax responsibilities, while the taxman has seemingly struggled to find ripostes for the committee’s probing questions into its power.

The next part of Starbucks’ statement is even more fun, as it talks of “undertaking measures to make Starbucks more profitable” during which some stores could close as part of that process.

We can only assume that the profitability into which Starbucks is to enter is a result of just ‘doing business’, and not as a result of public pressure – for if it was the latter then it would effectively be admitting to previous contrivance within its tax strategy.

The reaction to subsequent store closures will also be interesting to follow – will it be a case of ‘damned if you do, damned if you don’t’? Who will calculate the opportunity cost and net tax effect of, say, 1,000 jobs being lost against Starbucks paying a few million pounds’ worth of corporation tax? And the net reputational cost?

Capitalism isn’t nice and fluffy. It usually requires cold, harsh business decisions to be made in the pursuit of profit. While Starbucks looks to offer a more socially acceptable side to what it does, through its efforts in communities, ethical sourcing or the environment, it will do what it thinks best – overall – for the business. It has choices.

Unless we have a cross-border flat tax rate for economic activity, free of reliefs and allowances, then tax will sit within the decision-making process of business. Lest we forget that our government, so enraged at the tax avoiding going on, is continuing to push down the corporation tax rate and using the system as bait to attract inward investment.

So whatever games are played on either side, it would be great if someone, anyone, out there could rise above the bickering and sort this mess out. Because the public, through lost jobs or the denial of funds to Treasury coffers, will always be the ones to lose out.

Kevin Reed is editor of Accountancy Age and Financial Director