Tax americano

http://www.youtube.com/watch?v=3w4tcIsaInE&playnext=1&list=PLCZfzhrOFoIpCxLDFLBOM7OH-c6q9ya97&feature=results_video

I remember listening to some Labour MP a couple of years back arguing against some factory closing. As she wittered on about how the factory was still profitable so shouldn’t be closed I remember “wisely” thinking, that’s as maybe, however, it wasn’t profitable enough what with things like hurdle rates and acceptable returns on equity to consider. What reminded me of this is the chat about Starbucks paying just £8.6m in corporation tax over 14 years on over £3bn in sales or 0.29%. Now THAT is taking the piss.

It doesn’t actually matter what Starbucks or Her Majesty’s Revenue and Customs say, that is taking the piss. If the taxes paid reflect what Starbucks’ actually makes in Britain, then it is a profoundly incompetent business and the CEO and board should have been dismissed years ago for wasting shareholder funds on such a cack venture. If the business is as profitable as Starbucks actually tell investors (or they’re lying and therefore not fit to remain in place) and its all perfectly legal, then the laws governing corporation tax are profoundly flawed and/or Revenue and Customs are either bent or profoundly incompetent.

So there you are then, either:

1)      The Starbucks executive is profoundly incompetent
2)   The Starbucks executive  tells massive porky pies to people it shouldn't

3)      HMRC is bent

4)      HMRC is useless

5)      Corporation tax laws are useless/are easy to game by tax bods

You choose. Personally, I reckon a big dose of 5 most likely applies from which a couple of things flow, like Starbucks ability to game tax laws gives it a major competitive advantage - coffee tastes like shit? Who cares, Starbucks has the best tax experts so that’s what you’re stuck with – which in turn means we as consumers are more likely to be lumbered with it in perpetuity.

But, I reckon there’s an easy response at hand. Looking at how America periodically brings the multi-multi-million fine hammer down on business, as a mate has frequently pointed out, a big factor underpinning its ability to do so is access to its domestic market. Basically, as Standard Chartered recently learned, the American approach is this:

1)      We’ve caught you doing something we reckon is a bit naughty

2)      Because of that we are going to fine you. Big time.

3)      Don’t like that? Is it an ickle bit hurty?

4)      Pay up or we’ll lock you out the US market. Bitch.

By contrast the British approach has been a tad more obsequious as in every time anyone asks a multinational company or just an employer with a mind to outsource stuff, for well anything really, the response has been shut up or we’ll export everything including our head office to Poland, Ireland, Monaco, India, Indonesia etc.,

Except, this doesn’t apply to Starbucks. Or McDonalds. Or KFC. Or Top Shop. Or Tesco etc., Each of these companies – or at least the British bits – are wholly dependent on having “boots on the ground” on a high street near you; until someone invests a 3D printer that does lattes, they simply can’t outsource their outlets.

What this means is straightforward, we have them by the balls, so perhaps, given the extent to which Starbucks has taken the piss, we should start squeezing them.

Now, one option would be to rewrite or add to the existing corporation tax bible. Except doing so would be a mistake. It would be cumbersome, it would take up loads of time and money and, most importantly, it would be gamed. So don’t. Seriously, don’t.

Instead, in this era when the high streets at the heart of every community are becoming increasingly generic, PLC dominated statements of consumerist anonymity, introduce a high street regeneration fund  financed by a levy of say £10,000 paid for each outlet operated by businesses running more than say a 100 in the UK (for the same notion being proposed in a different context, see here).

Would this chase British jobs overseas? Nope, as has already been said you can’t outsource a Starbucks.

Would this penalise Small to Medium sized businesses (SMEs)? More than a 100 branches and you’re claiming you’re an SME? Piss off. Besides the 100 is relatively arbitrary.

But, all these companies already pay council taxes and what not making this unfair - pretty much every business pays council taxes, but, typically, only da big boys can  afford entire tax dodging departments, hence an additional levy targeted at them would make things far fairer than they currently are.

Ahh, but what if Starbucks closed branches as a result? So what, the smaller companies that already pay more tax would quickly fill the gap so we'd still be quids in. Heck they could simply buy up empty Starbucks premises given they were in already proven locations.

Will this push Little Chef over the edge? I guess, but given that’s been aggresively rogered by private equity for years and is cack who cares, plus it would engender more SMEs, more competition and better quality by taking away the competitive advantage big businesses have that stems purely from them being able to afford more tax experts than a much smaller rival that potentially sells much better coffee.

Ahh, but this would see businesses stall at 99 branches whereas we need national champions - nothing is perfect in this life so grow up, plus if you’re that big chances are you’ve got more than a few tax experts on the payroll already.And as I said the 100 is relatively arbitrary.

Besides, given Starbucks currently runs 735 outlets I reckon the additional, annual tax take of £7.4m vs the £8.6m they previously paid over 14 years is worth it. Actually feck £10,000, make it £20,000 or floor space related or something to catch Tesco, but you get the basic drift here – introduce an additional, retail outlet focused charge (i.e. a tax) designed to catch the tax efficient big boys. Above I suggested using some mince about high street regeneration as an excuse/cover, but heck call it the Starbucks levy for all I care. As for what it would pay for, that’s easy, mad stuff like school books.

An October 22nd P.S. You could argue this would penalise big companies that do play fair with their tax returns. You could, I wouldn't because in practice am guessing what playing fair most likely means here is not taking as much piss as Starbucks. Besides, what I'm suggesting would reduce their taxable profits i.e. on a net basis it wouldn't have that much of an impact on them. Anyway, the issue here is the British accountancy profession and Starbucks. Blame them.

Another thing is the suggestion I read today about having Starbucks up in parliament to explain themselves. This would be a distracting waste of time. MPs would huff and puff, senior tax bods would similarly puff and huff and Starbucks would say:

1) Its all perfectly legal and signed off by tax inspectors - which isn't the point. The point is they're taking the piss. That and as current tax law isn't working, then current tax law needs to be bypassed via a more striaghtforward approach - as people say, when you're in a hole, stop digging.

2) Then they'd most likely trot out how much income tax, national insurance, council tax and what not they pay - to which the response is so does every other company AND they pay corporation tax too ya twat. There's presumably also scope here to get really evil and compare/contrast all those things as a % of their turnover with a rival to see if they're gaming those taxes as well.

2) Confronted by that they'd most likely do some corporate social responsibility mince - which highlights how that's used to paper over/legitimise what businesses actually do, isn't compulsory and is besides the point which is Starbucks is taking the piss with their tax returns.

A 12/11/12 P.S. Wow. Now that Amazon, Google and Starbucks have been had up before some MPs the truth will out it seems. So whereas there was me thinking it was the shitness of the UK tax laws and the general ability of tax lawyers and accountants to circumvent them that was the issue, actually, for Starbucks its the fact they don't make money here - despite what they've said to their investors i.e. they are liars and shite at business.

But, MPs showboating does fuck all beyond feed MP egos and give the impression that something is being done. Some practical steps are needed and here, rather than the levy I thought was the thing to do, the former Labour government bod Lord Myners nailed it when he said a sales tax should be introduced, that being a means of catching online bods as well as coffee shops without wasting any time fannying about with HMRC.

Good. Introduce it. Now. And do so bearing in mind the Scottish levy on fag sellers that targets larger businesses e.g. it doesn't appear to be against the law to target specific business types. Heck, the criteria for what type of annual accountsa business needs to get done has made that clear for years.

The Starbucks boy was fun though, him and his bullshite (and of course they've talked up how much tax e.g. VAT, national insurance etc. they pay as if complying with the law was a big deal and as if every other business didn't already do so. Go home ya Ummurkan scum).

Shape of things to come

In a lovely wee article John Kay pointed out how any government wanting to get all strategic about the economic future of an economy would typically fall into the trap of asking today’s big corporate beasts about tomorrow’s economic prospects.

The neat wee example he gave to illustrate the fundamental flaws in such an approach
was how a government looking to figure out an IT strategy a few years back would have asked Big Blue IBM what they thought whereas the reality was that Microsoft, a then tiny wee company that wouldn’t have registered on any government’s radar/have hired a lobbying firm to spew its vested interests allova any politician that happened to pass nearby, was actually the future (cue reference to IBM making the fundamental strategic mistake of ignoring the subsequent importance of PCs and software as opposed to fuck off big complex hardware). Aye, that was what a fabulous person linking to UK Uncut’s rationale for having a go at Fortnum and Mason’s got me thinking today anyway.

The thing with UK Uncut though is, as they very rightly point out, the way things are is horrendously unfair; big companies dodge big tax bills cos of all the offshore holding companies and terribly clever accountants they employ. Except, however justified that may be, it’s still little more than a moral critique. And while morality is all very good, your moral values and mine differ i.e. they're open to endless debate and anyhow someone will sneak in some pragmatic shit about necessary evils and the game would be rendered a bogey. So instead, let’s construct a more effective “economic” argument.

The ability to aggressively negotiate a low tax settlement with Her Majesty’s Revenue and Customs constitutes a competitive advantage i.e., if a big PLC can negotiate a proportionately lower tax bill than a smaller rival, it can undercut said rival, regardless of actual product quality/service, efficiency and so on, and doing so positions it very well to drive said competition out of business. So really it’s in all our interests for every company, no matter how big, to pay the same % tax as each other (the alternative being us being short changed to finance the removal of competition that might otherwise deliver better products, services or job creation opportunities). So yeah, fuck one off deals reached against a backdrop of companies threatening to relocate their headquarters elsewhere. Instead, get every fucker to pay the same corporation tax rate and lets establish a level playing field that will let the Microsofts of tomorrow take over from the IBMs of today (ooh, a rhetorical flourish).

They don't like it up 'em

Earlier in the year we learned Barclays UK corporation tax bill in its 2011 annual accounts was £113m or 2.4% of its annual profits (the corporation tax rate in the UK for businesses with a turnover greater than £1.5m p.a. is actually 28% for 2010-11). This followed on from all the reports about Vodafone that indicates Her Majesty’s Customs and Revenue tended to reach "pragmatic" agreements with major PLCs about how much corporation tax they should pay.

Since then there’s been all this gossip about how Barclays might relocate its headquarters elsewhere if the Vickers enquiry into banking recommended any major restructuring of British banks i.e. the banks are saying leave us the fuck alone or we’ll go and you’ll lose out on all the corporation tax gravy.

Except, as the Barclays examples makes very, VERY clear the gravy ain’t that much to the point where its perfectly reasonable to ask if its UK operations were simply the subsidiary of some Cayman Island based outfit would the corporation tax it pays (on profits earned here) actually fall that much? In fact, could they actually increase given Barclays already pays tax on profits earned overseas to overseas governments and there would be less incentive for the UK taxman to go easy on its ass given its no as if Barclays is going to shut down all its UK branches in a big hissy fit?

Ahhhh, but relocating a head office overseas would see all the income tax all they head office bods pay fucking off also wouldn't it? Except, given as much of that as possible is already off-shored so fucking what? Plus, any future crisis would presumably be the Cayman Island’s responsibility and not Britain’s i.e. any cost benefit analysis would need to take into account the fact that British taxpayers would no longer be providing what’s essentially a free insurance policy that means they (we) are on the hook for what could be hundreds of billions of pounds to bail these kind of institutions out the next time things go phut, which as every historical study of financial crises makes clear will happen in due course?

It’s funny when you think about it. With all sorts of encouragement from politicians and what not all these megacorp PLCs have worked on a heads I win, tails you go and can fuck yourself ya stupid wee cunt basis for so long when shit actually goes down they don't have a clue to the point where they're left flailing about like beached fish. There again the fact that the ex-CEO of Barclays is now its chief advisor on regulatory matters, following on from all the networking opportunities with the Treasury Project Merlin created, and bank lobbyists are nagging HM Treasury on a daily basis, suggests awkward questions aren't on the agenda and that yer average punter is getting set up to get blithely fucked rough into a cocked hat all over again.