Many SME business owners would have mixed feelings on the public embarrassment of Starbucks, Google and Amazon over their corporation tax affairs. We all have to pay tax on profits and this can be offset legitimately by the real costs of doing business: hardware, travel costs, wages etc. In this case, all three companies pay a tiny proportion of their turnover as Corporation Tax and this is achieved by various strategies to cut profits through licensing costs for the brand name (Starbucks), operating as a subsidiary of a company based in Luxembourg (Amazon) and paying licence costs for software (Google).
On the plus side, all three companies provide a valued service with loyal customers and employ thousands of people in the UK. You could argue that Google’s position is unique, as its UK revenue is largely derived from Ad Words and banner advertising using software developed and hosted in the US. Amazon clearly operates in the UK with several large warehouses fulfilling order placed and destined for the UK, however the brains and IP of the operation reside elsewhere.
Of the three, Starbuck’s position is least defensible. The company claimed that it made a loss in 14 of the 15 years of operating in the UK, yet its glossy corporate reports say that its UK operation was profitable. Surely no sane business would sustain such a prolonged hit on profits if this was the true position. By contrast Costa Coffee made a £49.5m profit last year and paid £15.5m tax and McDonald’s had a tax bill of over 80 million pounds on 3.6 billion pounds of UK sales.
This has led to customers voting with their feet, in-store protests and now Starbucks offering to pay £10 million Corporation Tax to HMRC this year and next year. While tax avoidance is legal and all companies should not pay more than they need to, the principle of fairness should apply. To paraphrase Warren Buffet: “It takes years to build a brand, five minutes to ruin it”.Posted on