If You Want the Big Corporations Pay Their Taxes: Work With Europe

There is already an understandable degree of boredom with the whole corporation tax debacle that Starbucks, Amazon, Google and the rest are involved in. Or at least there is for me.

There is already an understandable degree of boredom with the whole corporation tax debacle that Starbucks, Amazon, Google and the rest are involved in. Or at least there is for me.

This is not because Starbucks et al shouldn't be paying the corporation tax levied in the UK or the moral arguments surrounding the fact that Starbucks and its claims to be an ethical company are disproved by its actions on a fairly regular basis.

No. The row over corporation tax is boring because nothing will change. Ask most voters if they would agree that big companies should pay their fair share of tax and at the moment you will get a fairly apathetic reply akin to "yes they should but who is going to make them?"

This is obviously a cynical view but the reality is that politicians in Britain and certainly this government are perceived as weak and unable, even if they were willing, to change the status quo.

So Starbucks will make some gesture of goodwill to rescue its brand from being tarnished by the current furore over its tax contributions in order to get back to business. In fact, it already has by offering to pay some corporation tax in the future. That will be the end of it despite the protests coming from groups like UK Uncut.

Big brands understandably want to protect themselves and Starbucks' brand is all about ethically sourced coffee. It sells consumers the idea that it isn't ripping off someone, somewhere in order to provide that coffee. It hates the possibility that it might be associated with putting a perfectly good coffee shop out of business by setting up two doors down the road from where that coffee shop has operated for twenty years or more.

If you don't think that happens let me tell you the story of a very lovely coffee shop just off Oxford Street, near Tottenham Court Road tube station. It was at least as cool as, if not arguably more cool than, Starbucks. I used to get my coffee from there every day as a student in 1998. Then Starbucks arrived and opened its shop just a few metres in front of this coffee shop meaning that commuters leaving the tube station would pass its doors first.

Inevitably the cool, independently run, coffee shop went out of business. The owners presumably sold it, as I discovered some years later it had become a bar. Starbucks can talk about ethics as much as it likes but its managers have hard heads for business.

Inevitably big brands like Starbucks hate the spotlight unless they are in it for the good things they are doing. And over the next few months consumers in the UK will be shown in no uncertain terms how nice the good people of Starbucks are in order to try to make them forget that they have been on a tax fiddle ever since they arrived in the UK in 1999. Starbucks' PR machine will be operating at full capacity.

It's a shame the owners of the cool coffee shop I used to frequent as a student did not have access to clever tax advisers to help them avoid paying the corporation tax they owed to the government, they might still be in business.

Free market economists will tell you that small businesses go bust every day and that this is the free market in operation. They will tell you Starbucks got things right and as a result grew into the global brand it is today. But in part it did so by cheating the tax system and despite having done so no politician is in a position to take them on, at least not from a moral standpoint after the expenses scandal.

However, it is also because they are caught up in the petty minutiae of arguments over membership of Europe.

This might seem like a strange moment to bring Europe up but the reality is the European Union could, if our politicians both here and across the continent could stop bickering for five minutes, solve this problem in one fell swoop.

Why in a common market are there 27 different levels of corporation tax? Surely a common market should have one corporation tax rate across all 27? That would imply a common market. Having such an agreement in place does not call for greater political cooperation beyond what should already be in place.

Before the euro sceptics jump up and down and scream about British sovereignty I am not suggesting a federal tax system, simply an agreement between all member states that they will charge a common rate of corporation tax.

By doing so it would be impossible for Starbucks to base itself in Luxembourg for tax purposes in order to pay less tax in the UK by charging its UK arm staggeringly large fees for use of the brand name. It would be unable to wipe out the very real profits the UK arm makes and transfer the UK subsidiary's profits out of the UK through Luxembourg to the US.

And in case any of you were reading the above and making parallels with money laundering, if it looks like money laundering I would suggest it probably is. Legal it may be but morally right it certainly is not, especially at a time when most countries in Europe are on their knees economically and where social unrest is growing in the face of austerity measures imposed because large investment banks, which helped to fuel the boom era across Europe, pulled out leaving a massive vacuum.

A common corporation tax code would mean Luxembourg would be no more a tax haven than the UK, France, Germany or anywhere else. It would also send a message to voters across the continent that their politicians finally understood that we really are all in this together.

Now I know the argument would go that Starbucks would simply base itself in Switzerland, which is after all not an EU member state and a tax haven.

But in doing so Starbucks would be defying the will of the governments of the 27 member EU and its people. The pressure that would be brought to bear and ultimately the damage that would be done to Starbucks' brand would be too large for it to take such action.

By uniting in this way no EU member state could argue that Starbucks would pull out of its country therefore pulling investment, which is the old chestnut usually dragged out by free market thinkers. Starbucks would never pull out of the whole of Europe it's too big a market for it to pull out of. And why pull out of individual countries if every member state charges the same rate of corporation tax?

One thing the free market commentators have right is the fact that Britain cannot act alone on corporation tax.

But our leaders are currently too preoccupied with fighting amongst themselves whether over the euro zone debt crisis on the continent or over mansion taxes and further austerity measures here at home, for any real thinking to be done on this issue.

There is also no way that David Cameron with his own political party on the verge of meltdown over Europe will propose such measure despite the mechanism for the proposal already existing therefore requiring no new treaty or further integration. The euro sceptics will cry foul claiming Britain has given up its ability to set taxes independently. Such an outcry will be nothing more than a knee jerk reaction based entirely on ignorance and a longing for a time long since past.

Moreover, there is no reason a mechanism to agree corporation tax levels annually could not be put in place and there is also no reason it has to be as high as it currently is in the UK. Corporation tax across the European Union set at 20% would probably satisfy almost every government and would most likely lead to every member seeing increased tax revenues as corporations are left with nowhere to hide and a united political will.

Ironically the row over corporation tax proves how much Britain needs Europe and how much our European neighbours will need us in the future, rather than the opposite.

This is our reality. Forcing large corporations to pay what they owe in tax is just the start of a redefining of Britain's relationship with big business. The UK's inability to make companies pay what they owe should be a warning not just to future generations about the power of business versus that of elected governments but to nations with much smaller economies than the UK's.

If Starbucks can defy the UK tax authorities for so long - even by legal means -what might it be doing to the farmers from whom it says it ethically sources its coffee?

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