Starbucks tax: A system built for playing
The Starbucks tax fiasco tells us much more about Britain than greedy corporations, reckons Paul Demarty
farcical pantomime battle between Starbucks and the taxman gets more
ridiculous by the day.
any international company with half an ounce of sense, Starbucks
funnels the profits it makes to places where it will be taxed as
minimally as possible. The American giant, which expanded from
Seattle to fill the entire world with disgusting, overpriced coffee,
has concocted a typically ingenious wheeze to maximise tax
efficiency. It is a ruse that has paid off handsomely, with only £8.6
million going to the exchequer in its 14 years of operations in this
has managed to do this by artificially wiping out its profits. It is
technically true: Starbucks’s UK arm simply has not made any
substantial profit on billions of pounds of sales in that period. Of
course, unless the tinny taste of a caramel macchiato is down to the
baristas stirring in molten gold, this flies in the face of reality.
The UK operation, rather, pays an enormous fee to a Swiss Starbucks
subsidiary for the coffee it serves - the kicker being that the Swiss
subsidiary does not actually handle the coffee. Genius! Add in a
substantial ‘royalty payment’ to yet another Starbucks
tentacle - this time in Holland - and taxable profits sink to close
has become the focus of a more general scandal concerning the UK tax
arrangements of multinationals. Google and Amazon have likewise found
ways to shuffle profits around their various local operations, to the
expense of Her Majesty’s Revenue and Customs. Neither have come
under the same level of outrage (let’s be honest - there are fewer
Google premises for UK Uncut to invade and start jumping up and down
inside); and neither are likely to offer the self-parodic peace
offering that has come from Starbucks, who have offered to write two
£10 million cheques to HMRC over the next two years.
have been a number of reactions to this, ranging from the credulous
to the cynical (more of the latter, thankfully). To start with the
credulous: it is said that the about-turn by Starbucks demonstrates
the power of consumers to force a change of course from major firms.
it is not the possibility (precisely zero) of legal pursuit from HMRC
that forced Starbucks to make their £20 million peace offering, but
rather the fact that the whole affair became a complete PR fiasco.
Ethical consumerists, who are forced to seize on anything of this
kind as a victory to distract attention from the broader trends, will
no doubt celebrate the success.
broader picture is as unattractive it has always been. Starbucks is
but one of a whole host of companies whose bad behaviour has been
exposed. It operates in a relatively efficient market, with
input prices fixed by global coffee production and several direct
competitors on the UK high street offering similar services (and
better coffee). It is simple enough for a yuppie of a conscientious
type to go to Costa instead, and so there has been a direct hit in
the last week or two to all that profit Starbucks isn’t making.
tax-dodging companies like Google and Amazon, however, have a far
more monopolistic profile, and have significantly shaped the broader
business sectors in which they operate. It is a much bigger ask -
financially and practically - to use these companies’ competitors,
which are either far more technically limited (in the case of Google)
or more expensive (Amazon).
in the comprehensive failure to obtain redress for the £6 billion
back-tax bill Vodafone had written off over a friendly meeting with
HMRC’s then boss, Dave Hartnett, and the consumer-as-tax-crusader
looks a far less likely saviour for the exchequer. For all the sound
and fury over that, Vodafone certainly has not been spooked into
rectifying its behaviour, and - like Starbucks - paid precisely zero
corporation tax last year.
or later, Starbucks will return to its old ways. This is not because
- as idiotic MPs frivolously suggest - it is run according to some
morally bankrupt corporate governance scheme. It is because Starbucks
does not exist to sell bad coffee, but to maximise returns for its
shareholders; and tax efficiency is a neat way to do just that.
‘Unethical’ behaviour is a competitive advantage in the
marketplace, which more than offsets the small bloc of self-righteous
customers which one thereby loses.
consumerism was one of the outcomes of the anti-capitalist (more
realistically, anti-corporate) movement of the 1990s - and it was
actively promoted to serve exactly this purpose. As soon as
capitalism exposed its ruthlessness and corruption - whether through
environmental despoliation (Coca-Cola), sweatshop labour (Nike) or
rampant fraud (Enron), the bourgeoisie would start yammering about
corporate social responsibility, or social entrepreneurship, or some
other such guff. It gives a certain layer of the well-meaning a way
to imagine that they can ‘make a difference’.
not everyone is quite as gullible. Starbucks’s behaviour in this
instance is obviously cynical, but hardly surprising.
Franklin, paraphrasing Daniel Defoe, famously said that nothing is
certain in life but death and taxes. The ruling class may not have
yet found a way, as in Richard Morgan’s science fiction novel
Altered carbon, to avoid the former. A good portion of
taxation has long been essentially voluntary for serious capitalist
from dispelling disgruntlement at this fact, Starbucks’s £20
million gift to the exchequer rather underlines it. UK Uncut, to its
credit, is not fooled: “Offering to pay some tax if and when it
suits you doesn’t stop you being a tax dodger,” reads a press
Even more beautifully, there is absolutely nothing to stop the
company taking taxable money out of another country to pay the £20
million, thereby reducing
its global tax bill. When life gives you lemons ...
as well that the public was outraged, because HMRC certainly was not.
The taxman has long lost his appetite for dealing with large-scale
evasion and avoidance (pursuing plumbers for taking cash-in-hand work
is, of course, another matter entirely). HMRC accepted the clearly
ridiculous claims of Starbucks, Google and Amazon that they had not
made a profit in the UK. It waved through the Vodafone £6 billion
write-off without even consulting its lawyers, and cut a number of
similar deals with other companies, including the great vampire squid
itself, Goldman Sachs.
we should not be too hard on HMRC. What else should we expect them to
do? Everything Starbucks and the others have done (perhaps not
Vodafone, but I suppose we will never know) is perfectly legal. There
is no sense in giving the taxman the finger if you do not have the
law on your side; and so Starbucks et al pay out enormous sums
to accountants and lawyers in order to save still more enormous sums
on their tax bills.
to the point, this is all by design. Some brave capitalist ideologues
contributed a comment article to The
that tax avoidance is not immoral (917 furious comments at the time
which pointed out the bleeding obvious fact that countries compete to
offer attractive tax regimes to capital: exploiting the loopholes in
Britain’s tax laws is quite as consistent with the spirit as the
letter of those laws.
Britain, the issue is even more acute. The world is littered with tax
havens, of which the City of London is the daddy. While the UK has a
headline corporation tax rate broadly comparable to other
‘first-world’ countries, the bald fact of the matter is that
transactions nominally supposed to have occurred in tax havens proper
- the Bahamas, the Channel Islands or whatever - for all practical
purposes take place in the City. Our fair nation is the central
organiser for the bulk of the world’s tax avoidance.
better than that, it is an economic model on which we are utterly
reliant. The Starbucks controversy nudged George Osborne into blowing
hot air about tax dodgers in his autumn statement, promising a
pitiful sum to pursue lost revenue. Labour figures - most notably
Margaret Hodge, chair of the commons public accounts committee - have
likewise huffed and puffed on the matter.
will do exactly nothing - because what tax they do cream off
London’s status as the centre of offshore finance (often indirectly
- the VAT on a Starbucks coffee, say) is needed to help prop up the
country as a whole. Osborne’s denigration of ‘shirkers’ on
benefits is based on lies, but his arguments about not scaring off
capitalists with punitive tax regimes are quite valid.
is the blind spot afflicting groups like UK Uncut most especially.
Underlying their efforts is the naive dream that Osborne is only
prevented from screwing the full amount of corporation tax out of
Starbucks and the like by his ideological commitments. In fact, the
problem is a quite genuinely global one, and has to do with Britain’s
role in the world state order. Confronting that problem requires a
serious strategic attitude to overcoming capitalism, for which
harassing Starbucks customers is no substitute.