Starbucksgate: Mind the GAAP

Google, Amazon, Microsoft and Starbucks aren’t aware of the HMRC’s existence.

For the past few weeks the press has been filled to the brim with stories about the “immoral, but not illegal” tax practices of some of the world’s biggest companies. Most focus has been on Starbucks (who managed to pay less than 1% corporation tax on £3bn revenues in the UK) and Amazon (who paid £1.8m corporation tax on £74.4m profits, from £3.35bn revenue), but Microsoft have been brought kicking and screaming into the melée also after it was revealed that their revenues are funneled through Luxembourg to avoid UK taxes too.This is all very provocative and stirs up a lot of emotions – especially given the tax burden on us “normal people”. But before you jump onto any bandwagons it is important to try and see both sides of the story. Is it really fair to paint these companies, who are operating well within established international laws, as mega-evil tax-dodging scum?

Don’t Hate the Player, Hate the Game

Or at the very least, understand the game…

It is all well and good dragging the UK Heads of these companies in front of Select Committees and MPs and such to ask for an explanation to their “immoral” behaviour, but there is no mention of morality in tax law. These commercial entities are there for one thing and one thing only: make money by fulfilling a need (or want). If any organisation pays a penny tax more than they absolutely have to, their accountants need sacking. It is for the Governments to close loopholes and define clear-cut, unabusable laws around tax. The biggest problem is the complexity of tax law – simple laws are much more difficult to abuse.

For once, I agree with creepy Google Chairman, Eric Schmidt, he says, “it’s just capitalism“. But remember, while their profit-based tax liabilities are probably lower than you’d expect, they are definitely paying an enormous amount of tax elsewhere. Taking Google as an example, they’re paying employer tax liabilities for over 50,000 employees worldwide, and collecting sales taxes for what looks like $40bn+ in revenues for FY2012.

Take Amazon as another example. While they’ve only paid £1.8m on that £3.35m of UK revenue, they will have collected around £750m in Value Added Tax, and paid 13% PAYE to the UK Government for its UK employees. Not to mention the ancillary benefits that Amazon brings: keeping couriers employed, putting more business through Royal Mail and allowing new businesses to thrive and flourish through Amazon Marketplace. Considering they only managed to eke out a paltry £75m profit on £3.35bn revenues shows how slim their margins really are. Given all the other benefits to Britain they bring, £1.8m in Corporation Tax seems fair.

 

A bunch of people who have missed the point about tax avoidance vs. evasion, but have the right idea about its solution.

Starbucksgate

For some reason, Starbucks are getting hit the hardest. UK Uncut are promoting massive boycotts across the country and newspapers are favouring them for their front pages rather than Amazon and Google. Why? Easy – there’s a Starbucks on every street corner, but Amazon and Google are just intangible things we come into contact through the mystical portal of our computer screens. There’s no real emotional link. But we’ve all sat in a Starbucks and inhaled deeply, grinning like a Cheshire cat at the glorious scents, with a big cup of java warming our hands. It’s real. It’s relatable. And journalists have to sell papers, just as companies have to keep profits healthy for shareholders…

Starbucks, who offer Fairtrade coffee and look after their bean farmers, are also the first company to respond to criticisms. They’ll pay £20m EXTRA corporation tax over the next two years than the law dictates they need to.

And yet, there are still calls to boycott this “immoral” company.

Step back, and remove yourself from the mob mentality. THINK FOR YOURSELF, and reason the situation properly.

Keep in mind that Starbucks isn’t even paying the corporation tax. (What? Of course they are!) No, Starbucks doesn’t even exist. It is a made-up thing to describe a group of people. Who pays corporation tax? Starbucks’s customers through higher prices, Starbucks’ employees through lower wages, and Starbucks’ shareholders through lower returns on their investments (which means we all get slightly reduced pension values if they’re linked to the stock market because the share prices won’t accurately reflect the value of the companies invested in!

 

Wake Up and Smell the Fairtrade Coffee

The organisation we should be boycotting is the UK Government. They have all the powers needed to sort out the tax system, but they aren’t. They would rather waste time dragging company Heads in front of television and Paparazzi cameras instead of doing their jobs: coming up with a proper set of policies for tax liability in this country.

It’s a good job Michael Gove doesn’t head up HMRC, otherwise this blatant attempt at avoiding doing what they’ve been employed to do could end up with some pay cuts…

But don’t get me started on the complete walking catastrophe that is Michael Gove. The sooner this country is shot of him, the sooner we’ll have some smart kids coming through schools again who can have great ideas and build great business. Until then, we’ll just have to keep blaming the incumbent great ideas and great businesses.

(Ho Ho) Ho hum….

 

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