How brands get away with paying low tax

Big brands like Starbucks and Facebook are going to continue to get away with paying low taxes for as long as consumers remain complacent, argues Matt Packer

‘If that company were a person,’ we’ve heard in the past week or so, ‘it would be sentenced to seven years in jail.’

‘Yeah,’ chimes the collective response. ‘It’s utterly disgraceful.’

Starbucks, Facebook and UK tax 

The bone of contention has been that most ancient of foes: corporate taxation of the witheringly low variety. On 16 October, news emerged that coffee chain Starbucks had paid only £8.6m in UK tax over the past 14 years, a rate of 1%.

Facebook, meanwhile, had shelled out just £238,000 in 2011 for the privilege of doing business on these shores, despite having almost 40m users here – all of which are touched by the network’s targeted advertising whenever they log in.

Explaining the sleight of hand that has led to Facebook’s negligible levy, accountant Richard Murphy of the Tax Justice Network said that the web giant ‘is recording expenses through the UK to claim tax relief on them, but recording costs through Ireland to benefit from its low rate of tax. It’s the same old story of: “we pay the price, they get the benefit”.’

Is tax avoidance ethical?

Murphy also pointed out that Starbucks re-routes its profits through Switzerland – a tax haven. All of this is perfectly legal. Whether it is ethical is another matter. What one firm avoids, another has to pay.

‘This is another blow for small businesses across the UK,’ AAT director of professional development Adam Harper wrote in a letter to The Guardian. ‘We are asking small and medium-sized enterprises to play a pivotal role in getting the UK out of this recession; yet HMRC launches new taskforces into many a local business, while Starbucks, a company that prides itself on its ethical standards and yet sidelines the UK tax system while raking in huge profits, it seems, walks free.’

Taxation determines what the government is able to provide for our country – through infrastructure, education, amenities and healthcare. It affects us all. So what exactly is it about the corporate-tax story that has led to it becoming a priority of professional commentators and journalists but not of the public? Why is there no outcry over the registration loopholes that permit such fudges?

Why being a big brand helps

It’s interesting to compare the public response to the FaceBucks details with reaction to the fraud and misery perpetrated by the banks up to 2008 and beyond. While most UK citizens take the view that the machinery of justice has failed to even twitch in the direction of the kind of ‘banker bashing’ they’d like to see, widespread protest over the meagre levies paid by consumer brands has been conspicuous by its absence.

The Facebook page Fair Taxation For All: Boycott Starbucks has attracted just 14 ‘likes’ since it was created on 16 October. But it’s not hard to see why this is the case.

Widespread disdain for the firm’s UK tax affairs is unlikely to arise for all the while it provides neatly packaged caffeine to busy people. Like it or not, Starbucks has become one of life’s great crutches. It has snapped up enough premises to make itself unavoidable, if not ubiquitous.

Any time an overloaded professional is forced to grab a latte from a nearby branch before the train to the crucial business pitch in Croydon leaves without them, they’re not going to rue their own weakness, or existence. They’re going to think: ‘Thank goodness for Starbucks, and all who sail in her.’

That goes double for Facebook. It has become so integral to diary dating, joke telling, community building, photo-sharing and keeping up to date with the hype surrounding Skyfall that, were HMRC to punish it in any way that affected its functionality, public outrage would be more likely to be aimed at the Taxman than at Facebook. As with Starbucks, Facebook has proven far too popular and useful to sustain a decent stretch of public antipathy.

Are big brands too convenient to hate?

There is a major problem with the complacency that these crutches have bred. Consumers have moved from being angry that they are supporting super-rich bankers working for bodies that are ‘too big to fail’, to tacitly declaring that their favourite brands are ‘too convenient to hate’.

Big brands and banks all fall into the bracket of international firms doing business in the UK, who are increasingly reliant on our laissez-faire system that allows businesses to thrive here without ensuring they pay their way. Until it raises urgent calls for a different approach, the public will continue to get the brands it deserves.

Matt Packer is Online Editor of Think Publishing

Matt Packer is a freelancer journalist who has contributed to Accounting Technician magazine, 20 magazine and the CMI website.