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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Leader: Labour is failing. A hard Brexit is looming. But there is no need for fatalism

There is nothing inevitable about the right’s supremacy or a catastrophic Brexit.

Democracy depends on competent opposition. Governments, however well intentioned, require permanent and effective scrutiny to meet the public interest. For this purpose, the role of Her Majesty’s Opposition was enshrined in law 80 years ago. However, at present, and in the week Article 50 is invoked, this constitutional duty is being fulfilled in name alone. (The Scottish National Party speaks only for the Scottish interest.)

Since re-electing Jeremy Corbyn as its leader, the Labour Party has become the weakest opposition in postwar history. It lost the recent Copeland by-election to the Conservatives (a seat the Tories had not held since 1931) and trails the governing party, by up to 19 points, in opinion polls. The Tories feel no pressure from Labour. They confidently predict they will retain power until 2030 or beyond. Yet as the poll tax debacle and the Iraq War demonstrate, prolonged periods of single-party rule run the danger of calamitous results – not least, this time, the break-up of Britain.

Under Mr Corbyn, who formally lost the confidence of 80 per cent of his MPs last summer (and has not regained it), Labour has the least impressive and least qualified front bench in its history. Its enfeeblement has left a void that no party is capable of filling. “The grass-roots social movement of the left that was supposed to arrive in Jeremy Corbyn’s wake has not shown up,” the academic Nick Pearce, a former head of Gordon Brown’s policy unit, writes on page 36.

In these new times, the defining struggle is no longer between parties but within the Conservative Party. As a consequence, many voters have never felt more unrepresented or disempowered. Aided by an increasingly belligerent right-wing press, the Tory Brexiteers are monopolising and poisoning debate: as the novelist Ian McEwan said, “The air in my country is very foul.” Those who do not share their libertarian version of Brexit Britain are impugned as the “enemies” of democracy. Theresa May has a distinctive vision but will the libertarian right allow her the time and space to enact it?

Let us not forget that the Conservatives have a majority of just 15 or that Labour’s problems did not begin with Mr Corbyn’s leadership. However, his divisiveness and unpopularity have accelerated the party’s decline. Although the Unite general secretary, Len McCluskey, elected by a fraction of his union membership, loftily pronounced that the Labour leader had 15 months left to prove himself, the country cannot afford to wait that long.

Faced with the opposition’s weakness, some have advocated a “progressive alliance” to take on the Conservatives. Labour, the Liberal Democrats, the Greens and the nationalist parties are urged to set aside their tribalism. Yet it is fantasy to believe that such an alliance would provide stable majority government when nearly four million people voted for Ukip in 2015. There has also been chatter about the creation of a new centrist party – the Democrats, or, as Richard Dawkins writes on page 54, the European Party. Under our first-past-the-post electoral system, however, a new party would risk merely perpetuating the fragmentation of the opposition. If Labour is too weak to win, it is too strong to die.

The UK’s departure from the EU poses fundamental questions about the kind of country we wish to be. For some on the right, Brexit is a Trojan Horse to remake Britain as a low-tax, small-state utopia. Others aspire to a protectionist fortress of closed borders and closed minds. Mr Corbyn was re-elected by a landslide margin last summer. The Leave campaign’s victory was narrower yet similarly decisive. But these events are not an excuse for quietism. Labour must regain its historic role as the party of the labour interest. Labour’s purpose is not to serve the interests of a particular faction but to redress the power of capital for the common good. And it must have a leader capable of winning power.

If Labour’s best and brightest MPs are unwilling to serve in the shadow cabinet, they should use their freedom to challenge an under-scrutinised government and prove their worth. They should build cross-party alliances. They should evolve a transformative policy programme. They should think seriously about why there has been a post-liberal turn in our politics.

There is nothing inevitable about the right’s supremacy or a catastrophic Brexit. At present, the mood on the Labour benches is one of fatalism and passivity. This cannot go on.

This article first appeared in the 30 March 2017 issue of the New Statesman, Wanted: an opposition