Coffee House

MPs criticise ‘voluntary’ tax arrangements for Starbucks and other big companies

3 December 2012

Danny Alexander might be glad that a PR panic before the Public Accounts Committee published its report into HMRC and the ability of multinational companies to avoid paying their share of corporation tax means he could be able to visit a Starbucks again in the near future. But his remarks on Radio 4 this morning show what a mess our tax system has got into. As PAC chair Margaret Hodge observed on Radio 5Live, there is now ‘a danger that corporation tax is becoming a voluntary tax’, and the Chief Secretary to the Treasury’s remarks did little to diminish that impression. Alexander said:

‘I think what I’d say is, look, if any company wants to come to see HMRC to say we think we might be paying too little tax and we want to pay a little bit more and we think we owe a little bit more within the law, then of course, that is a good thing, but there are millions of small companies up and down this country who pay the proper amount of tax, day in, day out, who think like I do, that at a time of economic pressure, that at a time of austerity, it is vitally important that everyone pays the right amount of tax, because to be honest, if everyone else paid the right amount of tax, then everyone else could pay a little bit less.’

This all sounds very cosy, doesn’t it? That if a finance director of a multi-national company suddenly has a burst of altruism, they can pop along to HMRC, and, over a latte, they can discuss paying a bit more money to the exchequer. Starbucks’ announcement at the weekend was simply that it was going to hold meetings with HMRC about the level of tax it was paying currently. But tax doesn’t work like the National Blood Service, relying on the goodwill of generous volunteers, and it shouldn’t feel voluntary for a company to pay its full share of tax. Neither should it rely on the moral fury of Starbucks customers boycotting the chain’s gingerbread lattes, or Margaret Hodge turning off her Kindle in protest at Amazon’s tax arrangements.

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And this is why the PAC’s report was as scathing about the way HMRC functions as it was about the way companies like Starbucks, Amazon and Google manage their affairs. The MPs believed it was ‘unclear whether HMRC has the necessary resources or are devoting the time and effort to collect the appropriate level of tax’. The report added:

‘HMRC needs a change in mindset in the way it approaches collecting tax from multinationals. At the moment there is a pervasive acceptance of the status quo by the top officials in HMRC and we have seen little evidence of a desire to be more assertive. For example, it is perplexing that, on transfer pricing HMRC consider a royalty fee of 6 per cent or 4.7 per cent can be competitive when the company involved consistently makes a loss. We expect HMRC to prosecute multinational companies who do not pay the tax due in the UK.’

The evidence that HMRC gave to the committee was not, as Coffee House reported at the time, particularly impressive. The report said ‘HMRC were unconvincingly positive’ and the department was ‘too passive in its approach’ to the Tax Gap – the difference between the amount of money the department believes it is owed and the amount that is actually collected.

Alexander did also say the government plans to ‘put more resources at the disposal of HMRC to make sure that they have the ability to get under the skin of what it is that companies and rich individuals too are doing in the tax system’. There is also a stated determination by the government to push G20 members to work together to tackle the profit-shifting activities of multi-national companies. But, like the Jimmy Carr case, reports like this will also add to the case advanced by tax campaigners that there needs to be a simplified tax system in the UK so that big companies can’t wield the might of what John Humphrys called ‘fancy accountants’ to avoid paying their share.

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Show comments
  • startledcod

    Lower the rate, increase the take – simples. Increase the rate, reduce the take; it is not a coincidence that the number of individuals declaring an income of £1m+ fell from 16,000 to 6,000 when the 50% rate was set, that is a massive reduction in the tax take. Take the top rate to, say, 38% and watch the coffers fill up. George Osborne knows this, surely, so why doesn’t he enact it, oh I remember he’s in a Coalition Government.

  • Bardirect

    These companies are removing bucketfuls of cash from the UK economy, the fact that they then pay little tax on this is a drop in the ocean. They aren’t really an asset to the UK economy in any way.

  • Ian Walker

    Any small business owner in the country could tell you that HMRC has not been fit for purpose for decades. Spiteful, petty jobsworths the lot of them.

  • James Strong

    Margaret Hodge is horrified about the idea of a ‘voluntary tax’ because she is of the mindset that the state has an undeniable right to take as much of your money as it wants, by compulsion.
    The tax code should be as simple as possible, the tax take should be as low as possible.
    Deny the state its revenue and force it to cut back on the amount it wastes. And it wastes an enormous amount.

    • Olaf

      She seems to have a different attitude towards her money

      • dorothy wilson

        Isn’t that the same with all socialists?

  • TomTom

    Corporate Taxeshave been voluntary for decades. The number of businesses paying Mainstream Corporation Tax as opposed to showing Assessments in the Financial Accounts is few. There are so many ways to manage tax that even without the complicity of HMRC it has been easy for corporations to minimise tax paid. The shifdt since the 1980s from Corporate Taxes to Individual Taxes on Incomes and VAT has been the result. Ireland has built its whole financial area in the port at Dublin on just this dodge with Invoicing Centres, just as in Luxembourg. Governments deliberately connived in this.

    • the viceroy’s gin

      To the despair of the EU and the rest of the globalists, Ireland has lowered their base corporate rate far below the world average, so they’re not really doing what you’re claiming.

  • anyfool

    Why is this two faced tax cheat still in charge of the Public Accounts Committee, how can the HoC members castigate anyone who is evading tax when this creature who is in charge of the oversight, is standing pissing in the same pot.

    • Colonel Mustard

      Do as we say not as we do. If anything is to be learned from post-Blair Britain it is that – oh, and that Labour politicians never resign in shame – they don’t know the meaning of that word.

      Truly horrible people with horrible prospects for this country.

    • Tarka the Rotter

      I don’t think Margaret Hodge could piss standing up. Maggie Thatcher probably could though…

  • Bob Dixon

    Gordon Brown integrated HMR&C with Customs & Excise and demanded a 25% reduction in head count. The result was that those with brain cells left, leaving behind inexperienced staff.

    HMR&C & Customs & Excise implement bills passed in Parliament. These are poorly drafted. They make the best of it.

    If our tax rates were below those of other countries, then international companies would have their headquarters here in the UK. This would increase the tax take.

  • Olaf

    Haven’t heard much talk about a dysfunctional tax system. Do they really expect companies an individuals to roll up wheelbarrows of cash to HMRC’s doors?

    If I had millions or billions in the bank I know I’d be doing what I could to stop the government taking it since all they are going to do is piss it up a wall.

    May I make a dramatic suggestion? How about simplifying the tax system so all these loop holes don’t exist, and how about spending tax money responsibly so that those of us who do pay tax feel we’re getting some value for the money WE’VE earned and we’re not just being robbed by an incompetent bunch of chancers who want to use it to feather their own nests and spunk it away on vanity projects. Just a suggestion.

  • Sean

    Why am I seeing “Hacked Off” adverts on the spectator site? I would have thought that with your statements against state regulation you would have blocked these.

    • RealTory

      Suggest you look up ‘hypocrisy’ in the OED. The Spectator, its editor and most of the writing staff appear to have joined the Guardian section of Common Purpose and with the honourable exception of Delingpole and (extraordinarily) Rod Liddle have all moved leftwards.

  • Matthew Whitehouse

    Isn’t it because we’re in the EU that means people can move their profits around to a low tax country like Lichtenstein, and “pretending” to make a loss in the UK.

    • TomTom

      Liechtenstein is NOT in the EU and you cannot simply migrate tax jurisdiction – you really must learn about The cook Islands which are NOT in the EU

    • HooksLaw

      Why does every company in the entire EU then not pay its tax into Lichtenstein?
      Why should Starbucks source its coffee from Switzerland?

      Why? ‘cos its a bloody scam and we are being taken for a ride. Numpty Central on here seem happy with that. Speaks volumes.

  • RealTory

    I listened in almost complete stunned disbelief as the thick, thick-skinned hypocrite Lady Hodge railed against multi-national corporations avoiding UK corporate tax. I was however unsurprised that John Humphries of the impartial BBC Today programme did not raise the matter of her own family’s multinational Stemcor paying just 0.01% tax on its £2.1bn UK business.

    • Swiss Bob

      Unbelievable that anyone takes any notice of her isn’t it. I mean really unbelievable.

      • telemachus

        Margaret is a good girl
        The only folk who do not believe so probably have too many Google shares

        • Swiss Bob

          Margaret is a good girl

          Thanks, I now have a little bit of sick in my mouth.

          She’s incompetent, a hypocrite and stupid, all evidenced in her chairing of a committee on a subject she oh so obviously knows nothing about.

    • TomTom

      Starbucks pays Income Tax for its Staff – marvellous. Does it pay VAT for its Customers too ?

      • RealTory

        Try and not be too thick muppet. The employment of people by Starbucks creates income tax revenue for the country plus of course the 13.8% employer’s NIC that the company pays. In the absence of Starbucks those jobs are gone and the tax revenue also. Try and keep up please.

        • TomTom

          Well Dimshit Tory you might consider that Starbucks is a disaster story but you still recite the line peddled by Kris Engskov MD of Starbucks……the simple fact is Starbucks employs foreigners largely and keeps their hourse below the NIC threshold. If it did not exist Costa or Cafe Nero would simply replace them. They are users of cheap migrant labour which we simply do not need.

          • the viceroy’s gin

            Get rid of the extraneous migrants, then.

            No sense blaming others for foolish public policy, which is like blaming others for stupid people who can’t care for their own toddlers, and/or are too stupid to password protect their electronic devices.

        • HooksLaw

          Allow me to leap to Tom Tom’s defence (no bigot I)

          If other local coffee shops were operating in place of Starbucks then they too would be paying staff NIC and their staff income tax and their customers VAT. these local companies would also be paying their share of tax as well.

          Starbucks and all the other companies like them are just like the odious hypocrite Carr and engaging in aggressive tax avoidance which is wrong. By their actions they are spitting in the eye of other hardworking tax payers who run their own businesses and they are acting anti-competitively in giving themselves an unfair edge. I am a tory and I believe in fair and open competition.

  • Russell

    Just another massive problem that Labour left behind after 13 years of failing in almost every area of government, then start jumping up and down screaming ‘why aren’t the government sorting this out , they have been in office more than 2 years’!
    Labour have a lot to answer for.

    • TomTom

      Try the 1980s when Labour was NOT in power

    • ButcombeMan

      More right than you know. Another Brown mess up to add to the list

      Labour -one G Brown- merged the (relatively) efficient HMCE (VAT & Excise Duty Collection) with the relatively inefficient, over staffed, overgraded, Inland Revenue (Other taxes). This was done on the basis of an evidence free report from Gus O’Donnell-doing his masters bidding no doubt. This was in line with fashionable moves around the world may of which have proved useless

      The merged department became/is, too big to manage and has had to cope with substantial cuts in resources and other really major changes (some staff going off to Border Agency-some investigators going off to SOCA).

      ALL YES ABSOLUTELY ALL of these Nu-Labour creations have been dysfunctional, ALL yes ALL have sufferred appaling staff morale. and loss of corporate memory as senior people, having just had enough, leave.

      IN the IR/HMCE merger, the Inland Revenue culture of gross inefficiency and ineptitude has prevailed, of course it has, because that Departmnent was much larger.

      None of this thought through by Brown and his hangers on, they never saw the big picture, they never understood that only so much change at one go, can be coped with.

      Not only did Brown leave the UK in the “BIg Brown Mess”, he made much of our tax collection system even more ineffective than before he started messing with it.

      HMRC now tries to collect tax by threatening press releases. It is hopeless. It will get much worse before it gets better. It is a joke. Hence the evasiveness in front of parliamentary committees.

      • Silverghost

        Right idea, but the wrong way round. The Inland Revenue always attracted the better people, because IT/CT/etc was a lot more complicated. VAT was more straightforward, and a clear indication that it attracted the lesser skilled workers was the penalty system – basically black and white, because their staff could not cope with anything more.
        Multinationals are not new. It’s the pensioning-off of loads of older, experienced tax officers that has contributed to this situation. And it’s a fair bet that some of those pensioners have gone to the large accountancy firms, and told them that the new generation haven’t a clue.

  • Duke of Earl

    All this shows is that corporation tax is a farce anyway and should be abolished. There is no such thing as “the right amount of tax” and everyone, business included should avoid paying tax if possible. That is the only way to starve the beast of money to waste.

    The answer is simple. Flat 35% tax on all income above the national minimum wage only. Wether it is from land (rent), labour or capital (cap gains and dividends). That is the only tax we need. Abolish everything else. And I mean everything.

    • TomTom

      Austen Chamberlain introduced Corporate Taxation in 1922. Philip Snowden abolished Corporate Taxes in 1924 in an act of stupidity by the first Labour Government. Corporate Taxes are essential to encourage Investment – high Tax countries have high rates of Investment

      • Duke of Earl

        We don’t need to “encourage” anything. Entrepreneurs are more than qualified to determine investments on profitability forecasts.

    • the viceroy’s gin

      …and thus all taxes would be paid by actual human beings (some of whom may even vote), rather than faceless bureaucratic and manipulative corporate institutions, influenced and influencing faceless governmental bureaucratic and manipulative institutions. What a concept.

      • Duke of Earl

        Agreed. Only people pay tax anyway so let’s end the charade. Companies are merely fictional legal constructs.

  • Bluesman

    “Margaret Hodge observed on Radio 5Live, there is now ‘a danger that corporation tax is becoming a voluntary tax’ ”

    Well, she would know.

    • HooksLaw

      Margaret Hodge supported a labour govt for 13 years which allowed and perpetuated all this.

  • Nick Reid

    “but there are millions of small companies up and down this country who pay the proper amount of tax,”

    Though HMRC’s official tax gap figures state that over half the £35bn tax gap is due to tax evasion by small companies. Mainly VAT.

    • TomTom

      Yes – SMEs get clobbered to subsidise MNCs

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