Saturday, 8 December 2012

Why are people campaigning to pay more for coffee?

I have not looked at the details of what exactly the likes of Starbucks are doing, but if it is legal it is legal. So what is the problem?

I can understand calls to change the law if something completely legal is felt by the public at large to be wrong in some way. But that does not appear to be what people are after. They seem to think that Starbucks should pretend the law is different and pay tax as if it was.

Lets get this straight - the purpose of a company is to act in the best interests of the company members (i.e. shareholders). If the directors have a choice of how they structure the companies finances and operations such that they make more for the shareholders in a way that is totally legal, then they have an obligation to do that. Indeed, if shareholders found that directors were choosing not to make best use of tax laws then the directors could be breaking the law. Companies are not charities - they are there for their shareholders.

If anything is wrong here it is the way the tax legislation has been written, not the fact that a company is doing what companies are meant to do!

It is odd, when there were plans to classify pasties such that they have VAT when they did not before, everyone is up in arms. The idea that pasties not having VAT could be a tax loophole that people are exploiting was never voiced.

Some would argue the lack of VAT on jaffa cakes is a clear loophole, but people don't offer to pay HMRC the VAT whenever they buy a packet, or call for the manufacturers to voluntarily hand over more tax.

Now, the VAT on a jaffa cake or a pastie is a small amount and helps everyone that buys them. Seems not to be the same issue as Starbucks? Well, if Starbucks pay lots of tax, what does that mean? I means some (more than now) of the price of your coffee from Starbucks is going to pay that tax. So it is the same thing. People buying coffee clearly want to pay more for their coffee so that some of that money goes to pay tax. People asking to pay more tax. Seems odd somehow to me.

Everyone is happy when it is themselves that are making the most efficient use of tax law, but the idea that someone else may be doing that is somehow offensive and they call it a loophole.

Update: Some of my comments from facebook - argument that jaffa cakes are irrelevant:-

Both are marginal "tax loopholes" designed to avoid paying tax. They are different loopholes and different amounts of money, but they are the same issue. If, as it seems to be the message of the campaigners, exploiting a "tax loophole" is wrong, then Gregg's and McVitie's are in the same boat as StarBucks. In general, a principle, like "exploiting tax loopholes" is not changed as a principle simply by the value of the exploit. It is the principle that matters, surely?

To be clear here, we need laws that work to allow HMRC to collect enough tax to allow us to run the country, and collect from companies and people in a way that is effective and (ha, nice word) "fair". If we have laws that fail in doing that, we need to change those laws.

However, we also have laws that make companies, by design and by law, selfish. Laws that mean companies are obliged and expected to take all steps they can (legally) to benefit the shareholders. So what starbucks is doing is what we expect a company to do, by design. Getting upset with starbucks is wrong. It is the wrong target, assuming what is happening is somehow "wrong". The correct target in such case is the law and making changes to that.

You could argue companies should not be designed like that, which too would be a change of law, but we do allow choices of companies (charity, co-op, non profit, or normal) and we allow consumers to choose who they buy from. So we pretty much have that covered.

If consumers choose to buy from a normal company that is there to benefit its shareholders, they should not be surprised when the company does just that, within the law.

It is also worth pointing out that regardless of corp tax, starbucks will be paying VAT and employers NI and rates and other ways in which companies hand over lots of tax to the UK. My corp tax bill is small compared to what I pay in NI and VAT... So they have not avoided all tax, they have reduced what they pay here.

16 comments:

  1. My thoughts exactly - it's not on Starbucks to decide to pay tax they don't technically owe, it's on the government to fix the tax laws.

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  2. Also since every multinational company will be doing the same what's so special about Starbucks? I don't see protests outside apple stores or for that matter Costa Coffee.

    There are problems with the way things work now.. Eg. Smaller companies pay more tax than large ones, but the answer is to change the law now push for Starbucks to make voluntary contributions!

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  3. Starbucks isn't coffee - I read somewhere (can't provide a citation) that they open stores classed as any number of subtly different technical terms to get around council planning departments' possible objections. "It's not a coffee shop, it's a cake shop that sells coffee".

    However on a more serious note, the fact Starbucks have been open about exactly how they avoid paying tax has shocked lots of people - in particular the fact that they siphon money out of the UK in 'license fees' and, unfortunately, make their UK stores unprofitable as a result has angered sufficient people who know it's morally wrong but don't know that the fix is in law, not boycotting.

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    1. "Starbucks isn't coffee" - I'll go along with that. Bloody foul stuff.

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  4. Richard Wiseman asked this a few days ago:
    http://richardwiseman.wordpress.com/2012/12/05/what-would-you-do/

    60% said they'd prefer the lower price/tax loophole.

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  5. I expect there are just as many UK based companies selling stuff in other countries but bringing the profits back here. I've no idea what their situation is, but for example ARM are uk based, but I bet all the CPUs using their licensed designs are made in china. Should they pay all their tax there then? Somehow I don't think that this complaint is meant to work both ways...

    People just like complaining.

    Not quite the same thing, but someone I know was complaining about the price of petrol, claiming that the oil companies were only interested in making huge profits for their "fatcat shareholders". So I said to him that he has several thousand pounds in spare savings, so why not become one of those fatcat shareholders himself if they are making such fantastic profits, that it would literally only take 5 minutes to buy shares! Apparently though i was just being stupid saying that as "ordinary people" can't do that. Hmm...

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    1. Quite - being a shareholder is easy - I have a share in BT Group plc even!

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    2. better hope those spare savings aren't in an ISA

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  6. "Starbucks is bad - they don't pay the right amount of tax": I wonder how many people who have worked in the service industry (waiters, bar staff etc etc) and who have received tips have failed to declare that as additional income to the taxman. That's actually tax evasion (as it is a legal requirement to declare it) and not tax avoidance (which Starbucks is doing - legally allowed, but can be seen as "morally wrong": but could be fixed if the MPs actually wanted to do something about it).

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    1. I have heard that also putting optional (*cough*) service charge on a meal gets you out of paying VAT on the optional component of the final bill; and NI, which doesn't seem to get charged even if you *do* declare the income, in my experience.

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  7. Starbucks/A&A don't pay VAT, it's the customers that do!

    HMRC are still considering the legality of Starbucks previous corporation tax stance.

    The worry over this is at least in part due to these companies undercutting their (UK based) competitors, eg:

    Amazon vs John Lewis
    Starbucks vs Costa Coffee

    Does Costa charge more for it's coffee than starbucks does? Nope. But if you buy in Costa, more of the money stays in the UK. It's rumoured that Starbucks revenue in the last couple of weeks is well down as people switch to Costa etc.

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    1. When a price is taxed the price may change, but not simply increasing the whole amount of the tax. The price ends up at a new market level. Indeed, competing with other similar products the price may not even increase. This means tax like VAT comes from both customer and supplier.

      There is a lot of country specific tax that starbucks pay, including VAT, NI, rates, fuel duty, and so on. They are choosing where the final corp tax is paid but that does not mean no tax paid in the UK, far from it. They are minimising their tax bill.

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    2. And then take from that the amount we have to subsidise their low paid workers in Tax credits, housing benefits, etc, to be able to surivive....

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    3. It's worth remembering that the cost of a product is determined by the market
      not the cost of production.. you wouldn't expect starbucks to be cheaper than costa, because costa will reduce (or increase) their prices to match whatever starbucks do - unless one of them starts selling at below cost, and that isn't likely.

      Also, Costa in other countries will be doing *exactly* the same thing to another country. That's the way it works (surprised they haven't moved their HQ like Boots did).

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  8. My problem with the likes of Starbucks not paying tax is that it is unfair on the small, local businesses (who benefit the local economy more) since they don't have the same opportunity for avoiding tax. However, you are quite correct that there is nothing "wrong" (legally) with taking advantage of loopholes in order to reduce the tax bill. Starbucks have made a choice to avoid tax, it may well pay off for them; however I also think its right for the media to highlight what they are doing, so that the public is aware and can therefore make an informed choice to buy from a company who is paying UK taxes instead, if that is important to them. Obviously, now there has been a lot of publicity, Starbucks thinks that paying UK tax will pay off (think of it as a marketing expense to make the company look better to prospective customers), so a demonstration that avoiding tax isn't always the best way to increase profits.

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    1. Indeed, but I would be happier if the coverage was more balanced - lots and lots of companies move profits to reduce tax. If you want to boycott them you find who they are using google from your windows machine, or maybe not. At the end of the day the better approach would be to change the laws and tax systems not pick on just one of the companies that quite sensibly do this. Though, as you say, if people are not buying coffee it is less sensible.

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