As someone working within the tax industry, I've watched the feeding frenzy developing over the "tax avoidance" activities of major multinationals trading in the UK with a mixture of bewilderment and laughter.
Starbucks decided to try and mitigate some of the bad publicity recently by offering to pay an additional £20m over to the UK exchequer, as some sort of goodwill gesture. In the best traditions of the well-advised, they of course stopped short of admitting any liability or malfeasance in their tax affairs.
They will also cease to use what is referred to in the trade as "transfer pricing" arrangements with their US parent company. These are arrangements common to all multinational groups of companies, where one part of the business in one country buys a product or service it needs from another part based elsewhere. It might be a part or a piece of equipment, or something you can't lay your hands on like the rights to use a trademark.
While the purchaser gets to claim the cost of whatever it is they have bought as an expense in their accounts, the seller has to show that income in their accounts and will pay tax in their jurisdiction on whatever profit they make.
These sort of arrangement are commonplace and are perfectly legal, indeed HMRC has a whole team of people dedicated to making sure these sort of arrangements are not being abused by the setting of artificially high or low prices between parts of the same group.There are plenty of British companies out there using transfer pricing to reduce their tax liability in one part of the world or another.
If Starbucks in the UK stops making these payments to its US parent, it will make more of a profit and potentially pay UK Corporation Tax. Starbucks in the US however, will make less of a profit as it no longer has this income stream, and therefore pay less US tax. The net effect on Starbucks the worldwide group is going to be absolutely minimal.
Let's be clear here. Starbucks have, based on the facts that are in the public domain, done absolutely nothing wrong. Once the payments they make to the US parent company, which they are entitled to claim as a deduction, are taken into account they make a loss on their UK operations.
So what of this £20m they are paying over the next two years then? It's not tax, as they don't owe any based on their accounts as submitted. HM Revenue & Customs have said that they are not set up to accept "voluntary" payments, just payments of actual tax liability. Indeed if you overpay your Corporation Tax to HMRC, they will usually just send you a cheque back in the post.
So presumably, when Starbucks attempt to pay it, HMRC will be unable to accept it. If it does, this sets an uncomfortable precedent for public opinion - rather than fact - being what dictates how much tax an entity should pay.
That Amazon and Google have got sucked into this furore shows how wide the lack of understanding of their tax affairs actually are. Neither company is based in the UK. When you order something from Amazon, you are not making a purchase from a UK company. When you click on a link or advert that generates income for Google, that income is not going to a UK company. So why should they have to pay UK Corporation Tax on their profits, rather than tax in the country in which they are based?
Don't like it? Don't buy from Amazon and don't search on Google. Use a UK based company, if you can find one.
Politicians through the ages have used tax as a tool of social or economic engineering. This time, before lighting the torches and storming the castles of the rich and powerful they might want to stop and consider whether there is any legal or ethical basis for what they do. Otherwise, the UK is going to become a much less attractive place for multinationals to do business, and that's in no-one's best interests.