This week is the start of term at LSE, so I’m back blogging. While I was away, Chris Lenon started his own blog. Lenon was Head of Tax at Rio Tinto, and then chaired the tax committee of BIAC, the industry group that lobbies at the OECD. We used to bump into each other quite a bit, and every time I log into LinkedIn it now asks me to endorse him with the question, “does Chris Lenon know about tax?”
Chris’ first post was about Starbucks, and I found it very interesting. He makes a point that I’ve also heard from other former tax officials (Lenon used to work at the Inland Revenue):
Starbucks has allegedly not made taxable profits in most of its 15 years of operations in the UK. In the real world companies can sustain start up losses for a period of time (say 3 to 5 years) but after that one has to question whether they would perservere trading at a loss, or cut their losses? It is questionsable whether a subsidiary which continues loss making beyond start up is operating at arms length as non connected parties do and it would certainly pose questions about its transfer pricing.
Over at Accountancy Age, Ben Saunders and Richard Murphy are debating whether the individual Starbucks payments were priced at arm’s length. Ben says that “Starbucks have unconnected third party licensees, an almost ideal situation for determining an arms-length price.” But perhaps there is a simpler jumping-off point, which is the business as a whole, not the individual parts and prices. And if you start there, it seems obvious that a company operating at arm’s length would not sustain losses for 15 years (even with a few profitable ones).
On Friday evening Ben Saunders posted a really interesting reply to my post arguing the case for name and shame campaigns. If you haven’t already, you should go read it.
It’s interesting for two reasons. First, because Ben’s been thinking hard about Starbucks’ tax structure and the practical implementation of its dramatic commitment last week. Ben thinks that the tax planning jumped on by Reuters, the Public Accounts Committee and UK Uncut was actually pretty inefficient, and Starbucks could probably have been saving quite a bit more on its global tax bill. He also has some interesting things to say about what the company is planning to do now.
Well, someone’s got to say it.
I presumed there’d be something weasily in there somewhere, but reading the statement in full, it seems pretty watertight.
In this post, I’m going to let you into a little secret about tax avoidance campaigners. But I’ll come back to that in a bit.
In a week bookended by the Public Accounts Committee’s criticism of Starbucks, Amazon and Google, and UK Uncut’s planned action in Starbucks stores, the usual criticisms of ‘name and shame’ campaigns have been given an airing. Today I want to address a couple of them, to explain why I believe that the campaigns run by NGOs or by grassroots activists are valuable.
Following the debate over today’s Public Accounts Committee report is difficult when everything is so blurred by simplification: it’s like Chinese whispers. But here are some thoughts based on what I think we know.
This afternoon, Parliament’s Public Accounts Committee (PAC) will be discussing “Taxation of Multinational Corporations” with Matt Brittin, Chief Executive Officer of Google UK, Troy Alstead, Starbucks Global Chief Financial Officer and Andrew Cecil, Director of Public Policy at Amazon.
The Guardian reports that Starbucks may already have sustained lasting damage to its brand image from the allegations against it, and today’s hearing is unlikely to fix that. Meanwhile there was quite a lot of venom directed at the PAC on Twitter last week, from those who considered it “uninformed” and “lacking understanding”.
There’s at least one point where I agree with these critics. The PAC is a group of MPs, who as legislators are responsible for the design of our tax system. These hearings are a chance for them to examine that system and recommend changes to it, but in doing so it’s fair that they should acknowledge that much of what they consider to be problematic is a consequence of laws for which they themselves have voted.
With that in mind, here are some suggestions for the hearing.
We’re invited to comment on International Tax Review’s Global Tax 50. It says a lot about these annual trade press lists that four years before I appeared in the International Tax Review list I had featured in its equivalent in Drapers, which covers the fashion industry! Still, it’s a fun game, so let’s play it. Here’s who I think they missed out.