Tax avoidance is beginning to hit multinationals’ bottom lines
8:45 am - March 4th 2013
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It used to be that tax avoidance saved businesses money. For decades, the world’s biggest multinational companies have been quietly shifting profits into tax havens to legally lower their tax bills and few but the most hardened activists batted an eyelid.
The financial crisis has changed everything. With the public feeling the pinch of punishing austerity, people have begun to wake up to how the global tax system operates and they don’t like it one bit. Tax avoidance may be legal, but its morality sits squarely in the dock.
New evidence has emerged suggesting that the reputational damage companies are taking from being exposed for tax avoidance scandals is costing them money.
A ComRes survey about public perceptions around tax avoidance, commissioned by Christian Aid, found that 34% of British people are currently boycotting the products or services of a company because it does not pay its fair share of tax in the UK. A further 10% say they are considering a boycott.
“What this survey shows is that one in three people are actually prepared to change their buying habits and boycott some of the firms seen as not paying their fair share in the UK. This surely must be a wake-up call to all businesses,” said Joseph Stead, Christian Aid’s senior economic justice adviser.
There is a caveat, of course. Google is one of the most prominent companies to be exposed for tax avoidance in recent months and it’s unlikely many people have boycotted a search engine which has embedded itself as a verb in the dictionary and the public consciousness. No doubt many people learned of the scandal through Google news.
But for highly brand-orientated public facing companies like Starbucks, there is a serious problem.
Within a week of being exposed for tax avoidance, Starbucks’ YouGov BrandIndex reputation score fell from 4.6 to -3.9 and research by Manchester Business School predicted the scandal could contribute to a fall in UK sales of 24% in the next year.
It’s a sign of things to come. Starbucks has gone to great pains in recent years to boost its CSR credentials by trumpeting fair trade products and environmentally sustainable practices, but all that good work was undone overnight with one negative tax story.
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Salman Shaheen is the editor of International Tax Review magazine, co-editor of The Third Estate and a freelance journalist blogging here. Also at Left Foot Forward, New Statesman and on Twitter.
· Other posts by Salman Shaheen
Story Filed Under: Blog ,Economy
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Reader comments
In starbucks’ case their bottom line was redrawn in order to maximise (or they would say “optimise”) tax avoidance. But it is very good to hear that income drops of 24% are in line for those who feel they do not need to contribute to common goods and services, and that a third of the public are active in this area.
I make a connection here with Experian’s claim today that many “Zombie Businesses” exist, only kept alive by very low interest rates, draining more viable businesses of access to bank funds. Those firms pushing tax avoidance to the max are also Zombie Businesses – they survive by pretending they make no profit, and increase the burden to other firms and people to pay for the common goods and services we all need, making life austere for the rest of us.
You’ll have people coming on here defending Starbucks by trying to claim they did actually make a loss on operations blah, blah, blah.
Always treat that kind of self-serving neo-liberal guff with the derision and scorn it deserves.
If Costa Coffee etc weren’t posting losses, nor – in the absence of some wild and ineffcient spending – would Starbucks be doing so.
It’s common for start-up businesses to make a loss initially. But for 15 years? What are they still doing in Britain? Why are they expanding?
@2 – You put your finger on it. Starbucks did indeed embark on some “wild and inefficient spending” as you put it, by taking on a large number of hugely expensive high street leases at the height of the commercial property market. More fool them. But this is a fact, not “neo-liberal guff”. Check it out.
@3 – Yes, you’re right. The UK operation of Starbucks has been pretty much a disaster compared to all the other countries in which they operate. So I guess that at some poiont they faced a hard decision whether to withdraw from the UK or to tough it out. They chose the latter, and that’s why they’re still here in spite of the losses they’ve incurred so far. Long term they may be right or they may be wrong (not our problem), but there’s no point in pretending that their losses to date aren’t real ones.
@4. Churm Rincewind: “Starbucks did indeed embark on some “wild and inefficient spending” as you put it, by taking on a large number of hugely expensive high street leases at the height of the commercial property market.”
Almost all of the businesses are Starbucks owned — the first franchises were launched this year. Consequently all of Starbucks UK (profit and loss) appears on the same balance sheets.
There is little doubt that Starbucks have shifted UK profits abroad to pay for “brand value”. It could be argued that Starbucks have overcharged on that value.
Starbucks has almost zero penetration in towns and cities internationally where good coffee shops already exist. The recipe to beat Starbucks is known to thousands of cafe owners.
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