Editorial: A £20m payment does not settle the tax issue

The Revenue needs to toughen up in its dealings with large corporations

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It is not difficult to see the logic for Starbucks. Faced with opprobrium over its legal yet "immoral" tax arrangements, the coffee shop chain has pledged to hand over £10m to HM Revenue and Customs in each of the next two years – in the hope of heading off a mass boycott. In these straitened times, such sums are not to be sniffed at. But the proposal is still wrong.

First, there is a principle at stake. The British Exchequer is no charity, and payments to it are not to be decided at the whim of the corporation. That the head of Starbucks in the UK, Kris Engskov, has said that the company will consider extending the commitment beyond 2014 only underlines the extraordinary nature of the transaction. Tax is not something that a company can choose to pay or not, once the temperature of its potential customers has been taken. Starbucks' move is not only a tax payment; it can be seen as a marketing spend – and at £20m over two years, cheap at the price.

There is always an element of choice in the taxes that large companies pay – in how outgoings are labelled, say, or in where profits accrue. But to create a precedent whereby a company can take the most aggressively avoiding stance possible and then, if rumbled, offset the damage to its reputation with an arbitrarily decided sum is to extend such discretion ad absurdum.

Even more so given that the only companies that will feel such pressure will be those such as Starbucks, operating in highly competitive markets where customers can easily go elsewhere and with any number of store fronts through which more zealous critics can launch brickbats. Meanwhile, Amazon and Google, which are also in the dock over their anaemic tax bills, have no such incentive.

But there is a broader point here. Yes, Starbucks et al have a moral duty to observe the spirit of the law, not just its letter. Money that is made in Britain, from British consumers, facilitated by British infrastructure, should be subject to British tax. Those taxes should be established by law, though, not by the threat of the mob. As things now stand, we have the worst of both worlds. Just as the Government is desperate to sell Britain as "open for business", public opinion has international companies forking out tens of millions they had legally expected to avoid. Such uncertainty helps no one.

HMRC, then, has as much to answer for as Starbucks. To refuse its £20m would be tricky to justify at any time; with the country facing the toughest spending cuts in generations it is unthinkable. But to agree a "sweetheart deal" of this nature not only lets Starbucks off the hook, but it also signally fails to address the issue.

The most far-reaching solution is, of course, an international agreement which ensures taxes are paid where revenues are generated. Talks are under way in Europe, at least, but will take time. To suggest, however, that the absence of such a treaty leaves Britain no options that do not damage its global standing is a staggering case of allowing the best to be the enemy of the good.

For a start, HMRC must toughen up. As MPs noted last week, HMRC is routinely "way too lenient" in its dealing with large corporations. There is also more that can be done to close the more egregious loopholes in the law. Measures forcing large companies to publish their tax arrangements, exposing the extent to which they are gaming the system, are also long overdue.

Whatever else, voluntary, self-imposed fines from those caught out by public opinion are no answer. Starbucks' £20m gesture will not make the problem go away. Not for the company. And certainly not for HMRC.

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