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3 December 2012

By paying extra tax Starbucks is doing exactly the wrong thing

A "moral taxation" system would be deeply weird.

By Martha Gill

So Starbucks has caved to public pressure and opted to pay more tax. It doesn’t have to – it has paid its legal dues – but is chosing to, as a moral gesture, in order to appease public anger. It is also trying to appease MPs, who have been keen to tap into this public anger by declaring tax avoidance “morally repugnant”.

Good thought, but any “moral repugnance” is in the tax laws they themselves continue to approve. No actual changes in legislation have been planned. Instead the government has opted to pressure companies not staying within the “spirit of the law” in a £77m crackdown.

This is odd. When government spots something “immoral” going on that is not yet illegal, common practice is to change the law (rather than simply moralise). It’s also common practice for companies make money by working out how they can cut costs while staying within the letter of the law.

If these practices are abandoned, a deeply strange system starts to emerge. Namely, a tax system which relies on public pressure to a few high profile firms. This looks unappetisingly vague and inconsistent to outsiders. As Alex Henderson from PWC told City AM:

“It is important that we have stability and simplicity in the tax regime if the UK is to attract foreign firms – if there is uncertainty in the system that is concerning.”

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Admittedly, there are a few places where simply urging people to keep to the “spirit of the law” works – places like China, where laws are occasionally kept vague (but with huge penalties) to scare people into behaving extra well. It may not work so well here.

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