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
Show Hide image

There's something missing from our counter-terrorism debate

The policy reckoning that occured after the 2005 terrorist attacks did not happen after the one in 2016. 

“Once the rockets are up, who cares where they come down? That's not my department, says Wernher von Braun.” That satirical lyric about Nazi rocket scientists has come to mind more than few times watching various tech giants give testimony in front of the Home Affairs Select Committee, one of the underreported sub-plots of life at Westminster.

During their ongoing inquiry into hate crime in the United Kingdom, committee chair Yvette Cooper has found a staggering amount of hate speech being circulated freely on the largest and most profitable social media platform. Seperately, an ongoing investigation by the Times has uncovered how advertising revenue from Google and YouTube makes its way straight into the coffers of extremist groups, ranging from Islamist extremists to white supremacists and anti-Semites.

One of the many remarkable aspects of the inquiry has been the von Braunesque reaction by the movers and shakers at these tech companies. Once the ad revenue is handed out, who cares what it pays for? That’s not my department is the overwhelming message of much of the testimony.

The problem gains an added urgency now that the perpetrator of the Westminster attacks has been named as Khalid Masood, a British-born 52-year-old with a string of petty convictions across two decades from 1982 to 2002. He is of the same generation and profile as Thomas Mair, the white supremacist behind the last act of domestic terrorism on British shores, though Mair’s online radicalisation occurred on far-right websites, while Masood instead mimicked the methods of Isis attacks on the continent.  Despite that, both fitted many of the classic profiles of a “lone wolf” attack, although my colleague Amelia explains well why that term is increasingly outmoded.

One thing that some civil servants have observed is that it is relatively easy to get MPs to understand anti-terror measures based around either a form of electronic communication they use themselves – like text messaging or email, for instance – or a physical place which they might have in their own constituencies. But legislation has been sluggish in getting to grips with radicalisation online and slow at cutting off funding sources.

As I’ve written before, though there  are important differences between these two ideologies, the radicalisation journey is similar and tends to have the same staging posts: petty criminality, a drift from the fringes of respectable Internet sub-cultures to extremist websites, and finally violence.  We don’t yet know how closely Masood’s journey follows that pattern – but what is clear is that the policy rethink about British counter-terror after the July bombings in 2005 has yet to have an equivalent echo online. The success of that approach is shown in that these attacks are largely thwarted in the United Kingdom. But what needs to happen is a realisation that what happens when the rockets come down is very much the department of the world’s communication companies. 

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