There are many abiding images of austerity Britain, I’m sure we all have our own. One of the most striking for me was that of police, funded by UK tax payers and facing deep cuts due to the empty Government coffers, standing guard outside chains of Starbucks because the American coffee shop conglomerate had avoided paying millions of pounds in UK taxes.
The police were brought in because of fears that some on an anti-cuts march in London might decide to vent their fury at the ubiquitous coffee chain, after news broke that it had been telling the British tax authorities it was making a loss while telling investors it was profitable.
An investigation by Reuters discovered that despite racking up £3 billion in sales since 1998 it has paid only £8.6 million in corporation tax in that time and nothing at all since 2009.
It is scandalous for giant companies worth billions of pounds to be able to get away with paying less than 1% in corporation tax while Government cuts bite hard. It’s not confined to the UK either. In the developing world corporate tax dodging is robbing the world’s poorest of $160 billion a year – more than the global aid budget.
This tax avoidance is technically legal with multinationals able to sell goods and services between its own subsidiary companies which allows them to shift profits through different countries. But just because something is legal doesn’t make it right. Slavery is a good example.
In the case of Starbucks the Reuters investigation revealed that the UK arm of the company was paying a royalty fee to another part of the company, for the use of its own brand, thus reducing the profits it had to report to the UK taxman. It was also able to direct some of its UK profits to a subsidiary based in Switzerland where it buys its beans and one in Holland where it roasts them.
This practice, known as transfer pricing, allows companies to shift profits between subsidiaries, some of which are based in tax havens. When a fair price is not paid for these transactions it is illegal and the practice robs countries of billions of pounds. In the developing world where government tax collecting departments do not have the same resources as the UK, the situation is even worse.
So what do we do about it? Well there are a number of lines of attack. UK Uncut have said they will be targeting sit-ins at Starbucks chains and thousands of people have already started boycotting them. Nowadays companies are increasingly concerned about reputational risk and shaming them out of bad practice can be effective. Boycotting will also hit them in the pocket which is sometimes what ultimately brings about a change in behaviour.
Our politicians also have a responsibility to enact legislation which makes tax avoidance more difficult. David Cameron is chairing the G8 summit in the UK next year and has a chance to take the lead on tackling tax dodging. Christian Aid has started a petition urging the Prime Minister to make the most of this opportunity.
Injustice often takes time to overcome. As Ellie Mae O’Hagen explains in this article in the Guardian, she was shocked when she heard tax justice campaigners speaking in terms of decades rather than months to win their fight: “It feels unnatural in our lustrous, capitalist world to have to persevere for long-term gains. But it is worth it, and – I believe – one day companies like Starbucks will no longer be allowed to avoid tax.” Christians have a long history of fighting injustice. William Wilberforce helped bring an end to slavery. Martin Luther King changed the face of American civil rights.
Where there is injustice I believe we have a moral duty to act. What do you think?