Corporate Tax: Is the system at fault?

Brought to you by our friends at Freshfields Bruckhaus Deringer LLP

I remember not so long ago, a period of a few weeks when you couldn’t open a newspaper or watch the news without seeing something about the ongoing corporate tax scandal.

Some of the biggest brands in the world were found to be taking advantage of loopholes in the system, to avoid paying corporate tax and save themselves millions in the process. Starbucks, Amazon, Apple… they were all doing it and the general public response was one of fury and outrage.

Starbucks was apparently one of the biggest offenders, with the BBC reporting in this article that despite making £400 million in sales during 2012, the international coffee chain paid no corporation tax. As a result, there were online petitions to boycott the coffee giant and even instances of organised protests in some of their UK stores.

Here’s what Starbucks has to say on the matter. According to the company website, Starbucks maintains that ‘they paid the level of taxes required by the law’. However, they also admit that they have ‘not paid a meaningful amount of corporation tax’ and have vowed to contribute more than £20 million over the next two years, regardless of how much profit they make.

So did they actually do anything wrong? It’s the general consensus that what the company did was unethical, as opposed to illegal. Obviously so, considering that none of the company’s bigwigs are serving time behind bar for tax evasion. This begs the question: is it the tax system that is at fault, or the corporations who have been found to take advantage of lax regulations?

Corporation tax, at its simplest level, is calculated from the profits of companies. If you don’t make any profit, you don’t pay any tax; sounds straightforward enough. What seems to be the issue is companies electing to base their companies in countries with lower tax brackets. Hence why Google chose to base two of its data centres in Ireland, where the corporate tax rate is an attractive 12.5%. Public anger it seems, is fuelled by the corporation’s blatant intention to avoid tax via intelligent and well-executed methods.

The scandal also had a wide impact on the business world. The revelations encouraged the relevant authorities to consider exactly how much companies were paying in tax and if so, whether this was in keeping with the law. In situations like this, businesses can rely on firms like Freshfields UK, who offer corporate law services such as advising companies undergoing tax investigations. However, it’s understandable why this should fuel the public’s anger towards international corporations who have inspired this interest in tax avoidance.

And yet despite all of this public outrage and frustration, I’m still met with a queue which snakes out of the door if I try to get a morning coffee from my local Starbucks. Everyone I know will be purchasing a large proportion of their Christmas gifts from Amazon. And most people (myself included) use Google several times a day to search for something. This begs another question; will we ever care enough about tax avoidance, that we’ll follow through on our word and boycott a service we’ve come to rely on so much?

October 2, 2013 · Tim Kevan · Comments Closed
Posted in: Uncategorized