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

Photo: Getty
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What Jeremy Corbyn gets right about the single market

Technically, you can be outside the EU but inside the single market. Philosophically, you're still in the EU. 

I’ve been trying to work out what bothers me about the response to Jeremy Corbyn’s interview on the Andrew Marr programme.

What bothers me about Corbyn’s interview is obvious: the use of the phrase “wholesale importation” to describe people coming from Eastern Europe to the United Kingdom makes them sound like boxes of sugar rather than people. Adding to that, by suggesting that this “importation” had “destroy[ed] conditions”, rather than laying the blame on Britain’s under-enforced and under-regulated labour market, his words were more appropriate to a politician who believes that immigrants are objects to be scapegoated, not people to be served. (Though perhaps that is appropriate for the leader of the Labour Party if recent history is any guide.)

But I’m bothered, too, by the reaction to another part of his interview, in which the Labour leader said that Britain must leave the single market as it leaves the European Union. The response to this, which is technically correct, has been to attack Corbyn as Liechtenstein, Switzerland, Norway and Iceland are members of the single market but not the European Union.

In my view, leaving the single market will make Britain poorer in the short and long term, will immediately render much of Labour’s 2017 manifesto moot and will, in the long run, be a far bigger victory for right-wing politics than any mere election. Corbyn’s view, that the benefits of freeing a British government from the rules of the single market will outweigh the costs, doesn’t seem very likely to me. So why do I feel so uneasy about the claim that you can be a member of the single market and not the European Union?

I think it’s because the difficult truth is that these countries are, de facto, in the European Union in any meaningful sense. By any estimation, the three pillars of Britain’s “Out” vote were, firstly, control over Britain’s borders, aka the end of the free movement of people, secondly, more money for the public realm aka £350m a week for the NHS, and thirdly control over Britain’s own laws. It’s hard to see how, if the United Kingdom continues to be subject to the free movement of people, continues to pay large sums towards the European Union, and continues to have its laws set elsewhere, we have “honoured the referendum result”.

None of which changes my view that leaving the single market would be a catastrophe for the United Kingdom. But retaining Britain’s single market membership starts with making the argument for single market membership, not hiding behind rhetorical tricks about whether or not single market membership was on the ballot last June, when it quite clearly was. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to domestic and global politics.