Starbucks and tax

For a company that likes to present a laid-back and neighbourly image to the world, few predicaments could be more dissonant than the one in which Starbucks now finds itself.

The British arm of the Seattle-based coffee shop chain has for the past week been battling charges of aggressive and antisocial tax avoidance. Quite whether it has done anything abusive to achieve its all but invisible liability to UK corporation tax is a question that is still being debated. Starbucks itself insists that it has not and that the problem lies in its unprofitable business model.

But the row illustrates yet again the extent to which public attitudes to tax avoidance have hardened. It is perhaps too soon to know whether Starbucks will join the likes of Top Shop in becoming a target for the public sit-ins and boycotts organised by bodies such as UK Uncut, the tax pressure group. The kerfuffle may swiftly blow over – not least because Starbucks may yet establish its innocence. But the charges have already done damage to its brand.

There is nothing wrong with high-profile public shaming as a weapon in the armoury against the exploitation of loopholes. Consumer-facing businesses that depend on public goodwill to make sales should expect to pay a price if they forfeit it. As austerity has hit, so paying conspicuously little tax has risen up the list of public niggles.

But public anger might equally be directed at the tax system itself, especially the way it treats multinationals. Current practice has turned tax into a largely voluntary gesture for such businesses. It is all too easy to shuffle income off to low-tax jurisdictions through intra-group debt financing and the transfer pricing of intangibles such as intellectual property.

Rather than relying on the taxman and the public to police the fuzzy boundary between legitimate tax avoidance and illegal evasion, a more rational method of linking the tax multinationals pay to real economic activity must be found. The EU has been considering the adoption of a system of “formulary apportionment” by which multinationals’ tax bases would be divvied up according to where they do business. This agenda, which needs a group of states to join forces, should be keenly pursued.

A fairer system would have many virtues. Not only would it lift the taint of suspicion from multinationals such as Starbucks which pay little or no tax. It might also help to win the British public round to the austerity on which the country has embarked.