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Tax – Starbucks and Google in Layman’s terms

Author: Henry Ejdelbaum

Tags: Corporation Tax, Starbucks

I do chuckle when I read about Starbucks, Google and the others fooling around with their tax payments. It’s one of the oldest tricks in the book and I remember being told by my teachers that there is a great deal of unethical motivation behind these schemes.

Translate the big international corporate strategy into a local scenario. A local trader has to buy a machine for £1,000 but in order to reduce his profit he goes to his friend Arthur and suggests the following:

“Arthur since you are retired and don’t pay any tax why don’t you buy the machine for £1,000 and then sell it to me for £1,100. That way I can reduce my tax because my costs have increased and we then split the difference because you don’t pay any tax.”

Would we at AIMS ever advise our clients to behave like this? No. Would our clients want to behave like this? No. Because it is illegal and it is unethical.

So when we read that Starbucks is negotiating with HMRC what tax they should pay it looks like they are haggling like Arthur did over what should be the “tax price” of the machine. And I think this is where the problem lies. If HMRC would apply a consistent and fair approach to all tax payers then this wouldn’t happen but I think that HMRC are so bamboozled by the big corporations that they are too timid to enforce the law.

I don’t think we need any new laws or any new policies and procedures. We simply need to apply the existing ones!