While tax costs are significantly high in the United Kingdom, we all have to pay our taxes, whether we like it or not. Furthermore, even though it is the individuals and businesses which earn the most that form the makeup of the highest tax brackets, tax costs for the average Brit can of course be just as frustrating. Before I go on to talk about large corporations, there are steps that the average Joe can take to ensure that their taxes are all well and good. For example, if you are self-employed, need to drive your own car to temporary sites or buy work equipment yourself, you may be eligible for a Rift tax refund by going to their website, logging on and using their online calculator. Staying with the subject of tax, tales of multibillion pound corporations deliberately minimizing their tax obligations are disconcerting to say the least. Yet, this is precisely the reality and the practice of Starbucks, Google and Amazon.
Anger at Multinational Corporations
A lot of people in the UK seem pretty angry at the likes of Starbucks, Google and Amazon around their behaviour of tax. There’s been a whole series of hearings in the UK’s Public Accounts Committee over the last few weeks, with statements from the Chancellor amongst the opposition. Many are irritated about multinational corporations paying very low tax rates.
Starbucks are a good example, as despite having turnover in the UK of about £300m, it pays no tax at all because of its loss making. The annoyance surrounds the fact that these multinational corporations are arranging their affairs such that they send any taxable profits overseas. In Starbucks’ case, they pay a royalty to their parent company worth about 4.7% of its turnover, which takes a lot of profit outside of the UK.
An Attempt by the Chancellor to Alleviate Pressure
It’s just the sort of period where you’d expect people to start getting annoyed about such practices. The Chancellor’s under pressure because tax revenues aren’t what we’d hoped they would be and the deficit reduction program isn’t going as the Chancellor hoped it would be. Foreign corporations are quite an easy target, and particularly consumer facing corporation like Google, Amazon and Starbucks, for the Chancellor to aim criticism towards to alleviate some of the pressure from himself.
What steps are being taken to put things right?
The reality however, what Starbucks are doing is completely legal, if not completely ethical. Starbucks nonetheless has responded by saying they’re going to have a look at what they’re doing in regards to UK taxation and the central result is likely to be that they’ll cut the royalty they pay to their parent company. Last year the royalty they paid was about £25m and its operating cost in the UK was about £28m. They thus probably won’t cut their royalty payments entirely, but by cutting it someway they’ll reduce their operating losses. However, the wider question for Starbucks shareholders is why the company is doing so badly in the UK anyway. The cost of coffee makes a profit here at an 11.5% operating margin which is pretty good. Starbucks however seem unable to achieve this.
Other consumer facing companies will act, particularly those that have been named, such as Amazon and Google. The Government is acting as well, through investing £77m to increase tax compliance and prevent tax avoidance. The Government say that this investment will create extra revenue to the exchequer of around £2bn; which isn’t a bad return on investment. The suspicion behind all this is that the corporations will always employ cleverer people than the Government’s revenue teams, which mean that the Government will always be playing catch up with the major corporations.