Tuesday, 23 October 2012

Clever Scheme or Immoral Scam?

by Karina Shooter
 Ironic? Jimmy Carr has already been in the media spotlight for his UK tax avoidance schemes, now Starbucks is following in his footsteps… Photo courtesy of London 24

Amazon, Facebook, Google, Starbucks, Ikea and eBay – just some of the major corporations who have been in the news recently because of their UK tax avoidance schemes. Although their clever tricks and cover-ups are absolutely legal, we are left wondering whether their actions are morally questionable. 

The Facts and Figures
  • Over the past three years Amazon has generated more than £7.6bn of sales in the UK but has paid no corporation tax on the profits of these sales.
  • Facebook paid only £238,000 in tax last year in the UK despite making an estimated £175m in sales. 
  • It has been revealed that, despite earnings of £3bn in sales since 1998, Starbucks has only paid £8.6m in UK tax in the last 12 years. Last year it generated £398m in UK sales but paid no corporation tax.
  • EBay’s UK division has paid just over £1 million of corporation tax, despite generating sales of almost £800 million in the UK.

How did they do it? 

Surprisingly, there are many legal accounting techniques that companies can use to lower the amount of corporation tax they have to pay to the UK. 

One such technique is to pay royalties for using the company’s brand name and logo to a foreign country. By paying a royalty of 3% to a separate company based in Holland, allowing the company to use Ikea’s furniture designs and its trademark, Ikea managed to lower their profits in Britain. This led to a significant fall in the amount of UK corporation tax which Ikea needed to pay. 

eBay followed a different approach. eBay UK directed its sellers to step up the fees in Britain, and then handed them over to a related company in Luxembourg called PayPal (Europe) Sarl. This means that most sales are channelled through a tax haven.

Starbucks used a combination of techniques. Through paying royalties to its own subsidiary for using the Starbucks brand name and funding its British division through high-interest loans, Starbucks was able report a loss of £33 million on sales of £398 million in the UK. This meant it did not have to pay any corporation tax, although it had to pay VAT on in-store hot drinks. 

Is this morally right?

"We have paid and will continue to pay our fair share of taxes in full compliance with all UK tax laws, as we always have," Starbucks said.

 "There has been no suggestion by any authority that we are anything but compliant and good tax payers.
 "We do this in a way that is consistent with the values that have guided us since we were founded more than 40 years ago: balancing our need to operate a profitable business with a social conscience."

Some people are of the opinion that it is unfair for small companies to pay their full share of corporation tax, whereas large companies are able to hire experienced accountants to find loopholes in the system. 

On the other hand, Tax expert John Whiting from the Chartered Institute of Taxation says:
"In many ways the biggest contribution it [large profitable companies, such as Starbucks] makes is in creating employment - [which generates] PAYE, National Insurance, paying business rates, VAT."

 "The company may not be paying much corporation tax but the country will still be making a good profit out of them."

What is your opinion? Should we boycott companies who are avoiding UK corporation tax or do you think that the actions of these major corporations are perfectly justifiable?

1 comment:

  1. Nice thought provoking article.
    Nothing illegal or immoral in what these companies are doing. They are playing by the rules and following the law of the land.
    Imagine if someone says to you that it's immoral for you to avail standard deduction allowed by the IRS and you should by boycotted.
    So there is nothing immoral.
    And such an opinion in the media will not make UK more investor and business friendly and more than anybody else, the economy and the people of the UK will suffer.


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