Is tax just a question of ethics?

In the wake of Starbucks’ tax U-turn, we need to acknowledge that multinationals already choose whether to pay tax or not - and make them pay their fair share.

So Starbucks is paying up.

Whether or not they will ever pay back all the tax they’ve allegedly avoided is still unclear. But the company’s announcement yesterday that they will “pay or pre-pay” around £20m to the Exchequer in the next two years is hugely significant for all sorts of other reasons. It proves the power of consumer democracy, showing that damage to a brand can reverse a company’s behaviour in a matter of weeks. It moves tax from the backroom of a tax negotiation to the heart of a corporation’s public responsibility to the countries and communities where it does business. And it throws the gauntlet down to other multinationals which use exactly the same kind of intra-company payments to shrink their tax bills, not just in the UK but around the world.

But some are already raising concerns that Starbuck’s back-down heralds a worrying new age of voluntary tax: at best, companies claiming that paying tax is philanthropy rather than legal duty, at worst a sort of ‘tax by mob rule’. The New Statesman’s Martha Gill argues that we’re approaching “a tax system which relies on public pressure to a few high profile firms” rather than changing the rules themselves.

Of course we need to change the rules, and we can’t rely simply on companies behaving themselves. Nor should we be replacing clear, certain tax laws with judicial or media activism. But the unappetising truth is that we are already living in an age of voluntary corporate tax for large multinationals, and have been for some time. If this is true in the UK, where online businesses can effectively choose whether to book their profits from UK sales in the UK itself or in a tax haven, then this is even more the case across Africa, Asia and Latin America, where countries lack our armour of anti-avoidance legislation, and whose tax inspectors are far more overstretched than even cuts-threatened HMRC.

In this environment, it’s gone largely unremarked that a few multinationals are already taking a different tack in complying with the "letter of the law". Financial services firm Hargreaves Lansdown, for example, has no tax haven subsidiaries, despite operating within a sector no stranger to "offshore". Legal and General explicitly aims to be categorised within the "low risk" category of HMRC’s risk rating. This is not to endorse these companies’ business practices, or even their tax affairs, but to point out that companies already make active choices, all the time, about their tax structuring. Starbucks’ announcement may go further than the others, and beyond the existing rules. But ironically, their corporate spin on their "voluntary" tax payments is actually a refreshing shot of reality: it calls a spade a spade, acknowledging that the rules are currently so wide that companies can indeed choose whether to pay tax. That’s an ethical choice, whether we like it or not.

Changing the rules to stop corporate tax being just “a bit of a bonus”, to be paid as and when companies choose, will ultimately require international action. To take just one slightly technical example: stopping companies booking their "UK" profits through Irish or Luxembourgish subsidiaries may arguably require strengthening the tax-law definition of a "permanent establishment", to allow national tax authorities to tax profits actually generated in a given country by a low-tax affiliate company registered elsewhere, and prevent that company’s profits floating free like a pirate ship in international waters. A change that will need to be written into both domestic laws and dozens of international tax treaties. And far more far-reaching reform is needed than that.

Next year offers a raft of vital opportunities at the G8 and elsewhere to start changing the international rules in earnest. Like all international action, it will take some time. In the meantime, countries all around the world, including the poorest, are haemorrhaging revenues into tax havens faster than they receive aid. While we wait for the rules to be changed, other multinationals need to explain why they now can’t or shouldn’t start paying their fair share of taxes: companies like Grolsch and Peroni owner SABMiller, whose perfectly legal Starbucks-type transactions we estimate have deprived African and Asian countries of enough revenues to put a quarter of a million children in school. It’s right that consumers should put these questions to companies. And that governments too should use their purchasing power to stop buying from tax avoiders, as a quiet announcement tucked away at the back of yesterday’s Autumn Statement suggests the UK government is mulling. At stake is not just a guilt-free cup of coffee, but revenues that are needed – right now – in the UK and some of the world’s poorest places.

Starbucks. Photograph: Getty Images

Mike Lewis is a tax justice campaigner at ActionAid

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Sadiq Khan to be elected mayor of London

The MP for Tooting will reclaim City Hall for Labour after eight years.

Sadiq Khan is to be elected mayor of London. Though results are still coming through, it is now mathematically impossible for anyone else to win. The Tooting MP has won City Hall back for Labour after eight years of Conservative rule.

At the time of writing, Khan is beating the Conservative candidate Zac Goldsmith, at 45.5 per cent to 33.9 per cent, in what could be described as a landslide victory. The Green candidate Sian Berry is third with 6 per cent of the vote, followed by the Lib Dems (4.4 per cent) and Ukip (3.5 per cent), in an election where turnout was higher than expected at 44.8 per cent – the highest turnout in a London mayoral election since Boris Johnson won in 2008, when it was 45 per cent (in 2012, it was 38 per cent).

The first MP of Islamic faith ever elected in London, Khan was also the first Asian and Muslim to attend cabinet meetings, after being appointed transport minister in Gordon Brown’s government in 2009. He has represented Tooting since 2005. There will be a by-election in the constituency as Khan stands down as MP.

Khan’s thumping victory is a boost for Jeremy Corbyn and the Labour leadership, after a night of disappointing local election results, and coming third in Holyrood. At the time of writing, Labour has kept the same share of seats in the London Assembly.

The result is a disaster for Goldsmith, whose campaign came under constant criticism for its scare tactics regarding Khan as a Muslim of Pakistani heritage. The Conservatives accused Khan of “pandering to extremists”.

Andrew Boff, the Conservative group leader on the Greater London assembly, called the campaign’s attempts to link Khan to Islamic extremism “outrageous” , and the outgoing Tory deputy mayor of London, Roger Evans, said it was a “foolish” campaign, which could “leave a negative legacy” for the Conservatives in London.

The result will come as a relief to pollsters, however, who were predicting at least a 12-point lead for Khan.

Anoosh Chakelian is deputy web editor at the New Statesman.