Enter Your E-mail

In the last few days, Starbucks has committed effectively to "volunteer" a minimum amount of Corporation Tax to the Treasury over the next two years - broadly £10 million a year. This will be regardless of whether or not Starbucks makes a profit which warrants such a payment.

In a speech to the London Chamber of Commerce last week, (as published in the Guardian), the Managing Director of Starbucks UK, Kris Engskov, said that the company would NOT claim tax relief for

• Royalties
• The profits taken overseas for coffee it buys from within the group
• Interest paid on intercompany loans
• Capital Allowances or losses available to carry forwards

It seems that even if these changes are insufficient to result in profits, the company will nevertheless pay £10 million in tax.

The company can disclaim Capital Allowances as the law currently stands - effectively 'storing' eligibility to claim until a future date. But CTA 2010 s 45 requires that trading losses be set against the next available profits derived from that trade. So Starbucks will effectively break that law if it doesn't claim tax relief for losses available to carry forwards.

But this goes well beyond legal technicalities: the company is basically now volunteering to pay what it believes people will think is "its fair share". Other businesses may be dismayed that Starbucks has taken this step - what will it mean for their own negotiations with HM Revenue & Customs over transfer pricing or royalty payments, if one company so publicly capitulates? Can Starbucks' commitment to pay tax, couched in terms of forfeiting those deductions, be distinguished from whether those deductions are in fact technically correct? It might have been better if the commitment to pay had been made without reference to any disclaimed amounts.

HM Revenue & Customs, and the Treasury, may be delighted that their publicity campaign that "everyone must pay their fair share" has proved so successful. But this potentially opens a door to two-way traffic: what if Starbucks decides in later years that it has paid more than its fair share? If businesses and taxpayers in general feel that they are obliged to pay more than the law requires now, will some of them not want to pay less later on? (Or of course as we speak). And if HMRC agrees to allow Starbucks to 'bend' the rules now, for instance so far as loss relief is concerned, will it not also be required to bend those rules later when Starbucks does want to claim the relief?

One might say that little has changed: there is a dialogue of sorts between business and HMRC. But that discussion is no longer over what is the correct amount of tax to pay. Legality has lost out to public opinion. Which is effectively where HMRC must have wanted the case to be heard, by using emotive words like "fair". This cannot be an effective long term substitute for good law, which requires a person to pay the right amount of tax, instead of cajoling someone to pay their fair share, as now. This approach cannot work for all businesses (very few have pockets so deep) and if it cannot work for all businesses, then it should not be endorsed.

In the long run, HMRC may come to regret this apparent success as "fair" can of course cut both ways - as the Autumn Statement made perfectly clear, tax will bear down heavily on individuals for many years to come and it would not be a great leap for individuals to see that as "unfair" and to be resisted.