Corporate Tax Dodgers – Am I really more profitable than Starbucks?

Today I thought I would write about something just a little bit more serious and contemporary for a change.  Over recent weeks there has been an ever increasing furore regarding large multinational companies which are either completely avoiding paying Corporate taxes or paying a derisory sum.  In times past this has been overlooked but with much of the Western world still mired in the 5th year of financial hardships, people around the world are realising more and more what is going on and they are getting more unhappy about it at a time when their individual incomes have been squeezed or cut altogether.

This is a global problem that many say can only be solved globally however I believe that it is time for leading nations to make a stand for themselves.  Typically in the U.K. for example many companies make huge profits from their operations here and yet their company is registered in a small low tax economy such as Luxembourg, Ireland or the Cayman Islands.  This means that money is being sucked out of the economy to places that have not earned it.  The first big name that came to every ones attention was that of Vodafone.

According to the pressure group UK Uncut when this government let Vodafone get away with not paying a £6bn tax bill earlier this year they sent a very clear message to UK citizens: we are not all in this together. Ordinary people must accept savage public spending cuts, whilst rich corporations can avoid paying billions and billions in tax. It was not a one off. Rich corporations and individuals collectively get away with dodging £95bn every single year.

In June 2008, after more than a century and a half in the UK, Boots moved out of the country to Switzerland. The British household name had been acquired, along with its company, Alliance Boots, in Europe’s largest private equity deal in 2007, thanks to £9.3bn of borrowing from banks and other investors. Interest payments on the Alliance Boots debt in 2008 were so large they wiped out profit in the UK – and the tax that used to go with it. HMRC (Her Majestys Revenue and Customs) rules allowed the company to set interest payments on its debt against profits for tax purposes, a benefit to investors that has helped to drive equity deals. 

Ten years ago the Boots group generally paid about one-third of its profits in UK tax. The revenue could expect a tax charge around £120-£150m each year.  Then came the move to the low-tax Swiss canton of Zug. After huge interest payments, its worldwide profits last year were £475m. It is hard to see which parts of the company are now making what, but the cash flow statement for the year to March 2010 shows that just £14m was recorded as the tax charge on those profits – that is, just 3% of profits.

Astoundingly none of this is illegal, these companies are just exploiting totally legal national and international laws but surely this is immoral.   When almost the entire FTSE100 (the leading 100 companies in the UK) are all exploiting the rules and draining money away then surely that is when it is a problem.

The diagram above shows the number of leading companies who hold subsidiary companies in the off-shore tax haven of Jersey.  All of these companies operate in the UK but for tax avoidance issues operate out of this tiny island.  This is just one tax-havens for the U.K.  Imagine how many locations there are around the world and how much revenue is being lost not just to the U.K. but much of Europe and North America.

Recently a number of predominantly American tech companies have hit the headlines for all the wrong reasons, namely making huge profits…. which is great but avoiding taxes, not so much.  According to the Reuters investigation, Starbucks generated £398m in UK sales last year but paid no corporation tax. It found Starbucks had made over £3bn in UK sales since 1998 but had paid less than 1% in corporation tax. Starbucks has paid a mere £8.6m in tax in the last 14 years.

It said the coffee giant had reported losses in each of the last five years and therefore did not have to pay any corporation tax, yet executives told analysts that the UK business was “successful”, “profitable” and they were “very pleased with the performance”.

Starbucks said it was committed to the UK and pointed out that it plans to create 5,000 new jobs over the next five years. The petition began as a direct reaction to revelations which emerged this week showing that Google paid the Exchequer £6m on a turnover of £395m last year. The company used a complicated series of mechanisms – all entirely legal – to ensure that much of its profit ended up being channelled from the UK and Ireland to the tax haven of Bermuda, which ensured it paid the minimum amount of tax possible.

Last week Facebook was criticised for paying just £238,000 in tax last year in the UK despite estimates of making £175m in sales, while earlier this year Google was also criticised for paying just £6m tax on UK revenues of £395m.

In April, a report in the Guardian said that online retailer Amazon had generated sales of more than £7.6bn in the UK over the past three years but had not paid any corporation tax on the profits from those sales.

This just cannot be right, indeed some of the companies above are claiming they have made a loss due to accounting technicalities and haven’t paid a penny of Corporation tax.  How can this be when these same companies are performing so well that almost everyone uses them and they themselves admit to planning to opening new stores or increasing operations.   We normal citizen have to pay tax, I pay it at about 25% on my income, richer people pay 40% or even more but none of these companies are paying anything like my amount.   Now it is true that these corporations are doing nothing illegal and they would state that they are paying various other taxes and insurances and by their very presence are generating income for the national economy.  However lots of companies do this and pay their expected tax payments.

I believe what these organisations are doing is immoral. They are enjoying all the benefits of operating in our society without fully contributing to it.  So they pay employment taxes for their employees pensions but what about other necessary government expenditure.  They operate in a modern and safe country but are they contributing to the military and police which allow them, their customers and employees to be in a safe and democratic country.  What about the roads, the infrastructure?  The schools to educate both their staff and their customer base?  The healthcare that provides for everyone. The list is almost endless.

In effect what they are doing is exploiting the country and the people. They are saying that we are good enough to take your money, to use up your national resources but we don’t think you are worth us paying the taxes that we should.  They don’t care about us and worse than they are treating us as inconsequential, just a means to an ends to boost their bottom lines.   It is hard to believe that Starbucks can have a turnover of nearly £400 million and yet no make a profit.  Are they incompetent?  Or are they just conning everyone?  If not in actuality, it is morally verging on fraud as when I make a transaction, I am acting in the belief that the company will pay the necessary taxes just as they are assuming that the money I am paying them was gained by legal means.  They are deceitful and using their excess untaxed profits to advertise against smaller, legitimate tax paying organisations and to promote themselves as wholesome or professional and often patriotic organisations when the reality is very different but then having a tagline of “we’re leaches on society and live off your hard earned cash” probably wouldn’t go down too well.

What makes it more galling is that all of these companies spend a lot of money on advertising a professional and wholesome image.  Take Tesco, the largest supermarket in the U.K and one of the top 2 or 3 supermarkets in the world.  Over 1 in every £10 spent in the UK high street by consumers is spent with Tesco.  They are in no way shape or form short of money and yet they actively avoid paying their full quota of taxes.  Of course Tesco is infamous for treating their suppliers poorly particularly with regards to exploiting farmers.

Perhaps the pinnacle of this whole charade is good old Sir Philip Green.  Sir Philip Green is a multi-billionaire businessman, who runs some of the biggest and most successful names on British high streets. His Arcadia Group retail empire includes brands such as Topshop, Topman, Dorothy Perkins, Burton, Miss Selfridge and British Home Stores.

Sir Philip lives in the UK. He works in the UK. He pays tax on his salary in the UK. All seems to be in order. Until you realise that Philip Green does not actually own any of the Arcadia group that he spends every day running. Instead, it is in the name of his wife who has not done a single day’s work for the company. Mrs Green lives in Monaco, where she pays not a penny of income tax.

According to UKUncut in 2005 Philip Green awarded himself £1.2bn, the biggest paycheck in British corporate history. But this dividend payout was channeled through a network of offshore accounts, via tax havens in Jersey and eventually to Green’s wife’s Monaco bank account. The dodge saved Green, and cost the tax payer, close to £300m. This tax arrangement remains in place. Any time it takes his fancy, Green can pay himself huge sums of money without having to pay any tax.

Before the election, the Lib Dems liked to talk tough on tax avoiders. But as soon as they entered the coalition, this pre-election bluster became just another inconvenient promise they quietly forgot. In August David Cameron appointed the country’s most notorious serial-tax avoider to advise the government on how best to slash public spending. Not a single Lib Dem minister uttered a word of complaint. A Guardian editorial denounced this as “shameful”.

Philip Green’s £285m tax dodge could pay for:

• The full, hiked up £9,000 fees for almost 32,000 students
• Pay the salaries of 20,000 NHS nurses

And if that’s not reason enough to take action against Sir Philip, it is worth noting that he has built his £5bn fortune on the back of sweatshop labour, using Mauritius sweatshops where Sri Lankans, Indians and Bangladeshis toil 12 hours a day, six days a week, for minimal pay.

The UK government claim that it has recovered extra £6 billion in taxes in last year but this is a drop in the ocean compared to the £95 billion that is being lost each year.

It is not just in the UK that such abuse is taking place.  In the USA in 2008, Goldman Sachs paid a pathetic 1.1% of its income in taxes. That same year, it earned a profit of $2.3 billion and received an $800 billion bailout from the Federal government, all financed of course by hardworking ordinary Americans who did pay their tax.

In Italy, the Irish airline Ryan Air owes €12million in owed taxes which the airline claims should not be paid as it is based in Ireland with its lower taxbase.  However Ryan Air was quite happy to fly 22 million passengers to and from Italy last year.

Surely the time has come to change the laws.  A simple albeit radical change that states no matter the geographic origin or the organisation, its Accounting or registrated offices; if a company does business in a country then that country is entitled to claim in full the taxes that it might ordinarly expect to receive as it does from citizen and thousands of legitimate business organisations.  Even in the news today is that Swedish furniture giant Ikea has paid no corporation tax in the UK for 3 years despite making £1.2billion in sales.  If they don’t want to operate legally in the country then let them leave and take their cheap plain looking excuse for furniture with them.  My guess is that they would want to stay whatever the law because they can make an awful lot of profit here selling to over 60 million people and if they can’t then I’m sure there are a lot of companies just itching to grab some of the market.

Arms sales, narcotics and the flow of people are all tightly regulated on an international scale.  Why can’t the same be done for tax?

I would ask anyone who is in broad agreement with this blog to register with their national protest organisations and contact their democratic representatives voicing your displeasure.  I am a big fan of boycotting products, firms and countries if they insist on doing something wrong or stupid.  It might not help much but it does make me feel like I am doing what I can.  Happily I try to generally live a fairly ethical life so I don’t shop at Tesco’s or Boots  even before I learnt of its their affairs.  I don’t like coffee and when I drink hot choc or tea then I try to use independent outlets and I definitely wouldn’t shop from Ikea if only on grounds of taste and I wouldn’t be seen dead in any of Sir Philip Greens stores.  However some of the offenders I do use, and I intend to find alternatives where possible and in most cases it is very possible.

Am I really more profitable than Starbucks?  More ethical?  Yes.  More moral absolutely?  Do I make better drinks than them?  Not wanting to blow my own trumpet but I probably do.  Am I more profitable than Starbucks though?  Surely not but apparently I am.

**Information, graphics and statistics have been based upon items in the recent editions of the Guardian and Independent newspapers and the websites of the BBC and pressure group UKUncut**