Hard economic times and seemingly unending austerity have prompted a growing taxpayer revolt in Britain. But the target of the discontent isn’t government. It’s foreign companies – including marquee names like Starbucks and Amazon – that avoid paying local taxes by moving profits to low-tax jurisdictions.
The public outrage has been building for weeks, with boycotts, demonstrations and a scathing report by a parliamentary committee that called some companies’ actions immoral. The government of Prime Minister David Cameron is now promising a crackdown on tax avoidance and it plans to raise the issue at the next G8 meeting.
“For the first time, suddenly people realize this is a personal issue,” said Richard Murphy, a British accountant who has been campaigning against tax avoidance for years through his Tax Justice Network. “There has been created an idea of us against them.”
Mr. Murphy said that at a time when Britons have endured two years of austerity and government cutbacks, people have become furious at reports that some companies are generating billions of dollars of revenue in Britain but paying virtually no tax here.
Starbucks has become the lightning rod in this revolt. The coffee chain has roughly 700 stores across Britain and has generated nearly $5-billion in sales since it arrived here 14 years ago, according to a report by the House of Commons Public Accounts Committee. And yet the company has paid just $13.7-million in tax over that period. Starbucks argues it just can’t make money in the United Kingdom and there are almost no profits to tax.
But others don’t buy that and say the company has moved the profits to subsidiaries in the Netherlands and Switzerland, where corporate tax rates are about half the U.K. rate.
Last week there were signs the protests are having an effect. Starbucks said it heard the complaints from customers and promised to pay roughly $32-million in taxes over the next two years, regardless of whether it makes any money in Britain.
“We know we are not perfect. But we have listened over the past few months and are committed to the U.K. for the long term,” managing director Kris Engskov said in an open letter published in newspapers across the country.
Several politicians and cabinet ministers rejected the Starbucks offer, saying that paying taxes is not voluntary. It “is not something you can just choose to do willy-nilly because you think it will please your customers. It is an obligation,” Danny Alexander, chief secretary to the Treasury, told the BBC.
And the offer has not eased the protests against the company. On the weekend, a group called UK Uncut occupied more than 40 outlets across the country, turning them into makeshift daycare centres for a couple of hours.
“When we first started campaigning against tax avoidance two years ago, no one cared very much,” said Murray Worthy, a UK Uncut spokesman who helped to briefly shut down a Starbucks in central London Saturday. “Now there is widespread acceptance that this is completely wrong.”
It’s not just Starbucks. The parliamentary committee also went after Amazon and Google, pointing out how they also avoided paying tax in Britain by moving money to subsidiaries in Luxembourg and Ireland. Last year, Amazon reported $5.2-billion in sales in the U.K. but paid virtually no corporate tax, according to the committee. Google generated nearly $600-million in revenue last year and paid just $9-million by shifting profit to Ireland. Other countries have joined the fray as well, including France, Germany and Italy, which have gone after Google and others for taxes recently.
There is nothing illegal or new about what these companies are doing. For years multinationals, including many based in Canada, have shifted money into low-tax jurisdictions to reduce costs and boost profits. But at a time when the recession is still being felt and cutbacks have become routine, these corporate tactics stand out. Consider this comment during a recent parliamentary hearing into the issue from Labour MP Margaret Hodge, who chairs the public accounts committee.
“We are not accusing you of being illegal,” she told an executive from Google. “We are accusing you of being immoral.”