
Starbucks, Google and Amazon: the tax crash of Monday afternoon - Cbasedlifeform
http://www.taxresearch.org.uk/Blog/2012/11/13/starbucks-google-and-amazon-the-tax-crash-of-monday-afternoon/
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jacques_chester
_"No man in the country is under the smallest obligation, moral or other, so
to arrange his legal relations to his business or property as to enable the
Inland Revenue to put the largest possible shovel in his stores. The Inland
Revenue is not slow, and quite rightly, to take every advantage which is open
to it under the Taxing Statutes for the purposes of depleting the taxpayer's
pocket. And the taxpayer is in like manner entitled to be astute to prevent,
so far as he honestly can, the depletion of his means by the Inland Revenue"_

Ayrshire Pullman Motor Services v Inland Revenue [1929] 141 Tax Case 754.

 _"Anyone may arrange his affairs so that his taxes shall be as low as
possible; he is not bound to choose that pattern which best pays the treasury.
There is not even a patriotic duty to increase one's taxes. Over and over
again the Courts have said that there is nothing sinister in so arranging
affairs as to keep taxes as low as possible. Everyone does it, rich and poor
alike and all do right, for nobody owes any public duty to pay more than the
law demands."_

Gregory v. Helvering 69 F.2d 809, 810 (2d Cir. 1934), aff'd, 293 U.S. 465, 55
S.Ct. 266, 79 L.Ed. 596 (1935)

~~~
dabeeeenster
I don't think anyone is arguing against these sentiments, it's more a question
of upholding the spirit rather than the letter of the law.

I doubt much 1930's money was being filtered through Bermudan or
Lichtensteinien shell companies.

~~~
jacques_chester
International commerce is not new, and the common law principle that the
taxpayer is not obliged to maximise their tax bill is exactly the same and has
been upheld consistently for centuries.

Countries who want to make money via a territorial nexus usually use VAT or
GST ... which the UK already does.

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spindritf
> Countries who want to make money via a territorial nexus usually use VAT or
> GST

Exactly, they have run into fundamental problems with income tax which is
simply a bad tax scheme. From being counterproductive to easy to game (at a
certain scale).

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jacques_chester
GSTs and VATs do "leak" for customers who personally import goods or services.
So for example, Amazon collects no GST for the Australian Tax Office when I
import books from them.

On the other hand, I receive no ability to offset my own GST collections
against GST expenditures.

Every tax has problems. That's why every major economy has a bunch of
different taxes that collect money in different ways for different kinds of
economic events -- purchases, income, sale of capital/equity and so on.

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bobsy
I am angry with Amazon and Starbucks. I feel both of these have a large
presence in the UK. They employ thousands of people. Amazon has done a large
amount of damage to the UK high street. Starbucks has pushed out a number of
independent coffee shops. The fact they are paying almost zero tax while being
here I find abhorrent.

I want Amazon and Starbucks here. However I feel both are taking the piss when
it comes to taxes. Amazon say they run a distribution network or something and
so only have to pay minimal taxes. I feel the fact that these companies failed
to justify why they pay the tax they do prove that they are doing something
wrong - even if its not illegal.

As for Google I feel it is less of a problem. They mainly deal in digital
goods. They don't have a big presence in the UK. They just offer their online
service's here. As most of the tech work is done in the US or Ireland I don't
think they have much to justify with their tax situation. I work for a
website-as-a-service company and we have thousands of clients scattered around
the world. Around 500 are based in the UK. I don't really see how we could
accurately be charged tax based on geographical location of Sales.

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tolmasky
> _I am angry with Amazon and Starbucks. I feel both of these have a large
> presence in the UK. They employ thousands of people._

> _As for Google I feel it is less of a problem... They don't have a big
> presence in the UK._

So let me get this straight, you are OK with Google not paying taxes
because... they don't provide jobs to the UK? My apologies if I honestly
misunderstood your post, but it seems really strange that you let Google "off
the hook" since they ONLY remove money from your economy and don't even create
jobs there. The way your post is worded its as if you are offended that Amazon
and Starbucks provide thousands of jobs.

If Amazon and Starbucks figured out a way to provide the exact same services
they do today, minus all those pesky UK employees, would you feel less angry
with them?

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toyg
I think it's mostly about resource usage.

Google services don't really benefit much from UK infrastructure (except
digital infrastructure, which is privately owned for the most part at this
point in time).

Amazon and Starbucks simply would not be in business without UK roads, UK
police and other UK services; so Amazon and Starbucks are benefitting from
taxpayer-funded services while not contributing their fair share to their
maintenance.

EDIT: sorry, I wasn't clear -- I'm not arguing that Google should be treated
differently, I was just suggesting a justification for the difference in
perception.

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ekianjo
Come on, roads have been paid back hundred of times since they were built,
just like phone poles and most of the infrastructure. Now the governments in
Europe are going after taxes because they are deeply indebted as __welfare
__providers. Most of your taxes have nothing, nothing to do with the
infrastructure or the maintenance of it.

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gadders
Also, the annual Road Fund license (that all UK car owners have to pay, approx
£100-£200 depening on engine size) is supposed to cover the cost of road
maintenance. In reality it does this and more and is used as just another tax.

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Retric
UK has 33 million vehicles and spends ~£12 billion on Road Maintenance
excluding _all_ construction costs. So £12 billion / 33 million = £363 per car
and truck. So, sorry your clearly wrong even before looking at construction
costs.

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Jabbles
I'm not angry with companies that avoid tax legally. It's in their nature to
maximise profits! Of course they'll do that if you give them the opportunity.
I'm angry at our government for making it legal, by allowing loopholes and
flawed laws to exist in the first place.

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mtrimpe
The thing is that to address this tax strategies would need to be aligned on a
global scale.

Accounting like this is very much like (grey-hat?) hacking; you have a very
large and complicated system and you simply need to find the weakest spot.

Defending against that can't really be done when you only have control over a
single component of that system.

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buro9
I'm pro-European, but I would argue that pulling out of Europe to force
accounting for UK sales to occur in the UK legal domain might be a very good
start.

At least this way each country would be incentivised to enforce tax locally in
a controllable and predictable way. And I'm sure that whilst some companies
might wish to pull out, most would stay.

a profit is a profit, it may be less than before but if you're still creating
profit you wouldn't give it up.

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toyg
That would actually have the opposite effect: corporations would simply
"optimize" even more around the UK system, and it'd be easier for them to push
money even further away from the reach of UK authorities.

What is needed is a strong European effort to align taxation, which would
remove any benefit from schemes like the Double-Dutch and Double-Irish, and
then levy heavy taxes on capital flight outside European borders. This, of
course, if our elites actually cared about tax evasion, which they really
don't -- can't risk to find those revolving doors shut when it's your turn to
bow out.

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Nursie
The 'Hollywood Accounting' that goes on in these multinationals is quite
spectacular. Moving cash around between their various subsidiaries and
national companies in such a way as to pay the least possible tax and to make
strategic losses where convenient, all the while announcing record profits.

I can see why you would try it on, the sums involved have to be huge, but it
is fundamentally immoral to operate like that.

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smoyer
"Fundamentally immoral"

In the US a corporation's legal responsibilities are to it's shareholders ...
it might be fundamentally immoral but it would be unethical to operate the
company against the interests of the shareholders too.

It's the laws that need to be changed rather than blaming the companies for
being good at accounting.

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morsch
I don't follow that line of reasoning. Assuming it's fundamentally immoral, it
remains fundamentally immoral for a company.

If a person did it, we'd call it immoral. When it's a group of persons doing
it, we'd call it immoral. But when it's one group of persons doing it -- the
employees -- in the name of another group -- the owners -- it's suddenly
unethical _not_ to do it? I don't get that.

I guess it'd be unethical for the employees to act one way when they know the
owners want them to act another way. But if the owners willingly let the
company act immorally, then they are themselves acting immorally. Which is, of
course, the case.

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wtvanhest
The problem is that shareholders include everyday people who have money in
mutual funds who invest that money in large cap corporations who depend on
management of those corporations to maximize their shareholder value at the
expense of all outside, non-investors. Including employees, governments etc.
as long as it is legal and maximizes long term shareholder value.

It is a fundamental shift in finance theory that occurred about 25-30 years
ago. Many people will argue that management should put the shareholders above
all else. I think there is a somewhat muted, but real discussion happening in
a lot of places that the currently accepted system may not be the best one,
but for now, management has a fiduciary responsibility to shareholders.

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morsch
It's a problem because it spreads out the blame on a lot of people. Management
can point to the shareholders. The shareholders argue they each own just a
small bit of the shares and aren't involved at all in the day to day business.
It's a systemic fault.

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wtvanhest
Yes, I agree with you. But it is a current fact. I have no idea what the
solution is, but when a system works conveniently for so many people it is
unlikely to change.

The crazy thing is that people "blame evil corporations" while having almost
100% of their retirement invested in the corporations they dispise without
even realizing it.

Unless you have no savings, you are likely a shareholder in a number of
companies which are using transfer pricing to save on taxes.

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Nursie
Very, very unlikely.

You are much more likely an investor in a unit fund that itself holds shares.
As a result you have no say over anything, and pretty much no alternative but
to join one of these schemes.

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wtvanhest
The point is: You invest in funds that invest in companies that use transfer
pricing to minimize taxes.

You could say you don't want to be invested by not investing in mutual
funds/ETFs etc.

But, almost every American with savings does invest and is the direct
beneficiary of transfer pricing.

You and others could decide to allocate a portion of your capital gains back
to the UK government as a gift, but I think that is "very, very unlikely".

[Also] One strategy could be to only choose small cap names, then you are
unlikely to hear of any of the "evil" things the corporations you own are
doing... Obviously that would create problems with risk in your portfolio.

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smoyer
I don't want to hear the author crying about how bad tax avoidance is ... it's
the tax laws that allow companies to behave that way in the first place. How
about simplifying the tax code so it's neither profitable nor legal to
manipulate the books.

I'm guessing the UK would love to have the 12% taxes that are currently paid
to the Swiss ... There's an easy solution! Set the tax rate to something
reasonable. Start a tax war and set your corporate tax rate to 11%. Eleven
percent of everything is going to be way more money than 30% of a loss right?
I live in the US and would love to see the same thing happen here as our tax
code is atrocious.

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Nursie
Oh yes, lets race to the bottom! That always turns out well!

~~~
smoyer
I think it would be a race to some balancing point rather than a race to the
bottom. Why shouldn't governments maximize their tax incomes in the same way
companies maximize their profits? I think here that balancing point becomes
the maximum taxes gathered when weighed against competing tax bases.

And the bottom has been reached if the profits are being parked in Bermuda ...
that's an effective tax rate of 0% for the company and an effective income of
0 for the government too.

~~~
Nursie
They have another option though, instead of just trying to price themselves
competitively they can change the rules and enforce better.

A government doesn't have to compete like this if it holds the key to its
market. If the rules are changed adequately you absolutely can say that they
must pay to play, and pay what you ask.

A mail-order company like Amazon is a different beast in this respect, but
something like Starbucks which has hundreds or thousands of physical locations
can't just set up somewhere else if you set the rules right.

~~~
lvh
It sounds like you're saying that now that Starbucks has an entire
infrastructure in the UK and therefore can't just set up somewhere else,
you've got them by the short and curlies, so you can change the laws any which
way you want to extract as much tax from them as you please.

Starbucks followed the law. You may not agree with the way they did it, or
what the law says, but AFAICT nobody is arguing that they've done anything
wrong (in the legal sense) right now.

The avoided taxes are _corporate_. All the VAT, taxes related to the jobs
they've created (which are legion, as you yourself have admitted), local taxes
(I am unfamiliar with how these work in the UK, but I presume they exist)...
are still being paid. Starbucks is significantly improving the state of the
coffers, and it's also minimizing how much it does so, as is its right and
responsibility.

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Nursie
No, I'm saying that Starbucks operate coffee houses in the UK, as such they
are operating a business within UK borders. Regardless of some status as a
homeless multinational _they are operating a coffee shop business within the
UK_.

It makes no sense to me that a local or national chain should be at a
disadvantage because they pay corporation tax in the UK, when a multinational
can _essentially run the same business_ but spirit away the profits when tax-
time comes around.

That's what I mean by the government holding the keys to the market, it should
be possible to say that if you want to operate here and have access to our
(clearly lucrative) market then you run by the same rules as everyone else,
giving an honest account of the profit and loss made on the business in this
country.

 _"The avoided taxes are corporate."_

So? The corporation is operating a business in the UK.

VAT is a tax on the purchaser, not the company. PAYE is a tax on the employee,
not the company. Yes, they pay 'business rates'. As they are required to. And
no, I'm not suggesting what the are doing is illegal, I'm suggesting it should
be made so.

The benefits of Starbucks operating the UK without paying corporation tax is
debatable. Is it really improving the coffers if people would go for coffee
anyway, in a place that does contribute back to the society it's operating in?

~~~
Cbasedlifeform
Excellent points. Thank you.

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bruceboughton
Surely the problem is that corporations are fundamentally difficult to tax as
they do not reside anywhere. Individuals have an interest in living in the UK
vs Ireland/Bermuda/Netherlands/etc. -- their family, their job, their
lifestyle, their worldview, etc.

On the other hand, corporations, especially multi-nationals, are an abstract
concept. They do not have a need to reside in any one place or another, except
for maximising profit.

It makes little sense to try to locally tax entities that have no afinity to a
location.

Finally, at some point a corporation's taxes are distributed to people, via
wages, dividends, etc. and these _are_ taxed. This is also the easiest place
to tax.

~~~
Nursie
Starbucks runs coffee shops, they are most definitely tied to location. They
are most definitely operating a business within the UK and should be subject
to UK tax laws.

It makes little sense to me to allow multinationals a huge advantage over
local business by letting them whisk away their profits.

These profits are indeed distributed to other people, in other places, not
subject to UK taxes. It's not only (IMHO as I said below) immoral, it also
distorts the market.

~~~
bruceboughton
Why question is why do we tax company's incomes at all? Direct taxes on
companies such as PAYE (payroll), VAT (sales) and business rates (premises)
are easier to enforce and scale fairly.

Instead of taxing corporations' profits, why not tax individuals more and re-
coup the taxes from the owners and employees instead of the corporations?

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Nursie
One reason might be that (as we see here) it's easy for the company to make
its profits disappear overseas, and the owners may well reside outside of the
market in which the company operates.

I agree there are probably easier things to enforce. OTOH a tax on company
profits seems inherently reasonable to me - it scales down and is less of a
burden on companies that are having a hard time, getting more of a take from
the successful firms that can afford it.

~~~
seabee
To expand on the point, the purpose of income taxes is to force the broadest
shoulders to bear the largest burden. Whether you feel it's ethical to do so,
for the purpose of the discussion we say it's OK - after all we can point to
many cases where things were earned by means other than hard work.

Things like payroll, VAT and business rates are based on some kind of
consumption and are independent of the magnitude of your success. Changing the
tax on these things will probably control how successful/profitable you are,
meaning if you set it too high your revenue drops off from businesses failing
- so clearly you can't optimise on consumption taxes alone. Hence the need to
also tax success in some way.

Unfortunately, taxing a very direct measure of success (income) doesn't work.
What alternatives do we have? This is the key question.

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tonyedgecombe
Corporation tax rates have plummeted in the UK over the last 30 years, perhaps
we should bite the bullet and eliminate them completely.

At the moment profits in a business are taxed, then when a shareholder
receives those profits as a dividend they are taxed again but with some
kludges to undo the double taxation. We would be better off dropping it and
focussing on purchase and income taxes.

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antiterra
I don't live in the UK, and when I'm there I generally avoid both Costa and
Starbucks. Yet, from what I have read, it seems Costa has dropped the whole
"fair trade" thing, while Starbucks continues to promote it. Does anyone have
any idea if this difference incurs much in the way of cost?

I know that Starbucks is convenient and consistent, but there are reasons
other than their ethics to drink elsewhere. In London, at least, there's no
shortage of UK coffee shops that make a product superior to both Costa and
Starbucks. Prufrock Coffee and Department of Coffee are notable examples.

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gadders
The fact is not that Amazon, Starbucks etc are paying so little, it's that
small businesses are taxed so much in comparison.

AFAIK none of these tax avoidance methods are available to small, single
country companies. HMRC are happy to sue small companies, whilst cutting
sweetheart deals with multinationals with deep pockets for lawyers.

//edit//It seems like Laffer Curve applies to companies as much as it does
people.

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tehwalrus
quick point 1: Murphy is a crazy left winger, seriously, try following him on
twitter and not exploding.

quick point 2: Seriously, income & profit generated from a country should be
subject to the tax of that country. I don't know why this isn't obvious to
everyone, especially HMRC/the Treasury when they _write_ the rules.

final point: I'm not sure companies should be taxed at all. Just make it law
that anything accounted for as "profit" must be paid as dividends, and charge
people income tax on the dividends. Do this at source, like PAYE, for all
dividend payments leaving UK-active companies, even the ones headed to foreign
citizens. (this would mean companies could re-invest in growth for free, but
that that growth would have to take place _in_ the UK.) Subject all "brand
value" payments, and indeed all other transfers abroad, to scrutiny /
valuation (should be easy for big companies, as there's only one brand.) This
would work anywhere, not just in the UK.

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digitalengineer
Nothing new here. Even bands like U2 and Rolling Stones operate like this. As
a citizen of a tax-haven (The Netherlands) I can tell you _we the citizens_
are not able to use these tactics, only international corporations can.

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kriro
I don't want to start a political debate but I think a decent argument could
be made that companies should not pay any taxes outside of direct use taxes
for infrastructure and so forth.

Providing jobs and products people want is already quite the social contract
contribution.

At the very least a tax code that people can actually understand would be a
decent start. I think it's pretty silly to point your finger at other
countries for making "shady deals" with companies. Pretty much every nation
does it, that's one of the reasons why tax codes are so complicated in the
first place.

~~~
danmaz74
So, for example, Starbucks should pay taxes based on how many km of roads they
consume?

~~~
jules
Exactly. Via a tax on fuel for example. This is much easier to enforce, and
sets better incentives than taxing income.

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stitchy
As I read the article, I kept wanting to write "citation" in the margins for
nearly every assertion that the author made. He is clearly passionate about
the subject. I applaud the attempt to hold multi-national companies
responsible for their actions. However, this read more like opinion and gut
feeling than a well researched article. I want to know what the law says.
Exactly what laws are being broken? What is the wording? Justify the statement
that "each of the companies made such a mess of this event" with quotes and
counter quotes. Don't just tell me your opinion.

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danmaz74
These big corporations are playing divide et impera with European countries.
It's very easy when each country has veto power on any important choice in the
EU.

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monochromatic
Moral high ground? The only moral directive of a corporation is to maximize
shareholder value.

The writer here sounds laughably out of touch.

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tomjen3
Why has anybody linked to this kind of whiny shit?

Of course corporations try to pay as little as possible to the tax man and of
course they shop around for the best deal. They do so for paper, why not for
tax?

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dabeeeenster
Don't be evil.

