Starbucks et al: making sense of today’s news

Following the debate over today’s Public Accounts Committee report is difficult when everything is so blurred by simplification: it’s like Chinese whispers. But here are some thoughts based on what I think we know.

1. Starbucks

The coffee giant “has been in discussions with HMRC for some time and is also in talks with the Treasury” with a view to “looking at its tax approach”. (Why on earth are they talking to the Treasury?) What with the outspoken comments from the bosses of Sainsbury’s and John Lewis recently, you’d be forgiven for thinking that public pressure is genuinely reaching the level at which it might have an impact on companies’ tax affairs.

Well, maybe.  As Ben Saunders points out, Starbucks in the UK will need to make a profit sometime soon if it’s going to utilise the tax credits from all those losses it’s been accumulating. So a revised tax position might not translate into more cash in the Treasury coffers for a little while at least, and may even reduce its overall tax bill. I imagine it would also be possible for Starbucks to shuffle its tax base around so that it incurs more tax in the UK without a major change to its overall liability.

That said, on £300m sales, Starbucks’ eventual tax liability in the UK might conceivably work out at £10m, which is probably equivalent to the cost of the brand damage it has sustained over this affair. So in this case there may be a business case for an increased tax cost, which would not be the case for every business.

2. International action

Danny Alexander has just said on BBC Radio 4 that the international tax system needs to catch up to the internet age, something the UK will pursue through its presidency of the G8. Based on its position at October’s UN tax committee, however, his own department is still wedded to the notion that jurisdiction to tax rests on having a physical presence in a country. The countries keen to change this norm, making it easier to tax internet companies selling to their residents, were all non-G8 members. So are we going to end up with two divergent approaches?

3. HMRC

I never quite understand the figures for investment in HMRC, because there seems to be a further £X million to “crack down on tax cheats” every year, at the same time as HMRC overall has to make cutbacks. But apparently an investment of £77 million will raise £2 billion: if it works, that’s an impressive revenue productivity ratio of almost 1:30.

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