James Ashton: Starbucks' tax climbdown means others must wake up and smell the coffee wrangles will continue

  • @mrjamesashton

Outlook There are all sorts of reasons why Starbucks should have held firm over the issue of tax. Instead, it has opted for the ultimate in tax self-assessment which will see it cough up £20m over the next two years, whatever it makes.

Before its about-turn, the coffee chain was operating within the law by making a royalty payment to its Dutch arm that wiped out profits and negated the need to cough up corporation tax.

That flavour of tax, like this season's gingerbread latte, is only one part of the mix for the company. Like everyone else, Starbucks is also on the hook to pay employment taxes on the staff it has recruited, business rates on properties and VAT on goods and services.

Corporation tax has become a convenient campaigning issue, but measuring it is a very inexact science. A piece of research I carried out last year found that 20 per cent of the companies in the FTSE 100 – so notionally British firms, not foreign multi-nationals – paid their chief executive more than they paid the Exchequer in corporation tax in the prior year. Many had paid no corporation tax at all.

There were all sorts of reasons given, such as benefiting from tax credits for making investments, overpayments in prior years that had been rebated and overseas interests which dwarfed tiny British operations.

Corporation tax is lumpy at best, but more often – as with deciding whether George Osborne's deficit is actually going up or down – just tricky to calculate.

Starbucks came a cropper by following not the spirit of the law, just the letter of it. You don't have to be a tax accountant to drink its coffee, and it showed in the public outcry that ensued.

Margaret Hodge, chair of the Public Accounts Committee who labelled such activity as "immoral", suggested in the House of Commons today that public pressure was having an effect. She has a point. Starbucks has had the froth knocked off its cosy, community-spirited image with this one. Caffeine addicts really were voting with their feet.

Coming out as it did today sets an interesting precedent. Without discussing the matter with HM Revenue & Customs, Starbucks is effectively pledging to pay a fixed fee for operating in Britain – a bit like the banking levy the Government has forced on our lenders.

Who will follow? Google has been bolder in this debate, insisting its tax affairs will be shaped by the law of the land, safe in the knowledge there is less choice in the search engine market for users to stray off to.

International treaties to capture leaking tax revenues aren't easy to agree on, yet Starbucks has shown coffee drinkers and politicians alike that they aren't necessary. Does Amazon share its view? Today's climbdown means this issue will run and run.