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Starbucks, Google and Amazon: the tax crash of Monday afternoon

143 points by Cbasedlifeform 14y ago

Nursie 14y ago
The 'Hollywood Accounting' that goes on in these multinationals is quite spectacular. Moving cash around between their various subsidiaries and national companies in such a way as to pay the least possible tax and to make strategic losses where convenient, all the while announcing record profits. I can see why you would try it on, the sums involved have to be huge, but it is fundamentally immoral to operate like that.
- easytiger 14y ago
  > fundamentally immoral to operate like that. err. no it isn't.
  - Nursie 14y ago
    It is in my moral code - Availing yourself of a market and using the facilities and workforce of the UK, without chipping in your fair share (as decided by the people of that country). Sounds immoral to me.
    - Jach 14y ago
      I'm sure if the UK precisely defined what they mean by "fair share", and enforced their own laws regarding companies paying their "fair share", these companies would pay it. Or leave and do business elsewhere. Trying to do business without paying the legally required tax would be illegal, and immoral in your system, but not immoral in any system that views forms of income taxes as evil. (There are a lot of those around.)
      - Nursie 14y ago
        There are indeed a lot of people who view income taxes as evil. Many, many people including a lot of people in the UK. But that doesn't stop them being thought of as a necessary evil, and avoidance as worse. It's quite clear what the intent of the tax laws is, and it's quite clear that announcing a loss to the tax office but a massive profit to your investors is at the very least duplicitous.
        easytiger 14y ago
        > It's quite clear what the intent of the tax laws is, If it was then what they are doing would be illegal
        Nursie 14y ago
        So in your mind there's never a loophole in a law or a conflict between the law as intended and the law as written or enacted by the courts? Interesting worldview there...
        easytiger 14y ago
        tax is a robbery anyway. We only pay it because the government will take away our personal freedoms if they didn't receive payment. Do you honestly think if tax was 100% voluntary people would willingly donate without being coerced into doing it?
    - CompiledCode 14y ago
      I agree. It's stunning to me that a bunch of executives and lawyers sat together and decided, we are going to take advantage of the infrastructure and workforce in the UK, but will avoid paying any taxes there, using these clever shenanigans. And because it saves money and is in the interest of the company, it's okay. That most ordinary people would agree that this is the right approach tells volumes about the society we live in.
    - easytiger 14y ago
      > It is in my moral code Someone out there has a moral code that encourages stoning women to death. Doesn't mean that has got anything to do with anything being as it is a vague and meaningless concept that doesn't inform governance. > Availing yourself of a market By which you mean acting as a VAT collection body and sending that money to the treasury for transactions within that market that occured under your business. > the facilities and workforce of the UK Would you rather the roads were empty because the people of the UK had no jobs? There are ways to address this issue as discussed endlessly. But the last thing this is is immoral. It may not be just nor fair, but those do no interact with the morality of a benign government and their laws and regulations. It doesn't help the argument but it is rhetoric that is being thrown around that as much as anything hinders progress on this issue
      - Nursie 14y ago
        Someone out there has a moral code... I didn't claim morality was objective, no need to behave as if I did. By which you mean acting as a VAT collection body... What are you trying to say here? That because they collect VAT that's ok and they should be exempt from other taxes? Would you rather the roads were empty because the people of the UK had no jobs? False dichotomy. It's not the ability to move profits abroad that keeps people employed in the UK, arguably it sucks money out of the country and is a net loss to our economy.
        burke 14y ago
        > I didn't claim morality was objective, no need to behave as if I did. > it is fundamentally immoral to operate like that. Sounds pretty objectively-stated to me. Count me in the camp that disagrees with you. Normal people do all sorts of perfectly legal tricks to pay less income tax. They're not cheating; they're just paying the minimum they're legally required to pay. Same deal for business. Whatever they can get away with without breaking any laws is the minimum requirement. Paying extra tax out of some patriotic duty is illogical, as is not taking advantage of the perfectly-legal loopholes found. It is not up to the businesses to pay more tax than the current legal framework requires; it's up to lawmakers to amend the tax code so that 'undesirable' loopholes are closed. Businesses act to maximize profits. There is nothing immoral about this.
- mtrimpe 14y ago
  It's not fundamentally immoral; it's more of a tragedy of the commons. All these loopholes are perfectly legal and companies actually need to exploit them to remain competitive.If they didn't then any competitor could decide to do this and could earn 30% less and still make a bigger profit. It would of course have been great if the representatives had been self-aware enough to agree that they might not be taxed effectively in a global market and that they would be willing to co-operate with aligning global tax incentives in a way that leaves it a level playing field for all competitors; but that's probably a bit much to ask ;)
  - Nursie 14y ago
    Whether it's a tragedy of the commons or not is orthogonal (IMHO) to a question of morality. Same with legality. I don't disagree with what you're saying otherwise.
    - davidp 14y ago
      It's better to treat matters of law as orthogonal to matters of morality, since the latter depends very much on the subjective judgment of the observer. Example: A company, acting "morally" as you define, pays more tax than it is required to under the law. In so doing, it incurs a loss so severe that it must cut staff in order to remain viable. Among those employees cut are some of the more vulnerable - those with low savings, poor health, or babies on the way. Has the company acted morally? Consider another issue: Should the same company pay more than its legal obligations in every jurisdiction to which it is subject? How should it allocate its extra giving? What if, in some of those jurisdictions, there's a good chance the extra money will simply go into private pockets via graft and corruption, instead of serving the public good? (There are such jurisdictions in the EU, yes?) These issues are not as clear-cut as you suggest. It's far better for the tax law to best reflect the morality of the citizenry, and then fully excuse the citizenry (including business entities) from seeking to legally minimize those taxes.
      - mercurial 14y ago
        That's disingenuous. You make it sound like your imaginary company goes to extra length to "pay more tax than is required under the law" while it's the complete opposite: these companies go the extra mile to game the system and pay a minimal amount of tax by exploiting failures in the system. There is no "extra giving" to consider, they should just be paying the same taxes other companies are paying.
- smoyer 14y ago
  "Fundamentally immoral" In the US a corporation's legal responsibilities are to it's shareholders ... it might be fundamentally immoral but it would be unethical to operate the company against the interests of the shareholders too. It's the laws that need to be changed rather than blaming the companies for being good at accounting.
  - Nursie 14y ago
    It's an interesting conflict, and clearly they do have a duty to investors to maximise their profit. If it was a privately owned company it might be more clear cut. Absolutely agree the laws need to be changed. I, personally, would be looking to stop the 'convenient' reporting of losses in markets that are actually highly profitable but not tax efficient. There's an interesting comment on the Starbucks press release that coves it quite nicely - "How can Starbucks tell Companies House and HMRC that its UK business is loss-making but tell analysts in SEC-regulated calls that the UK business is profit-making, without either making misleading financial statements or filing false accounts?"
    - rfugger 14y ago
      http://starbucks.co.uk/blog/starbucks-commitment-to-the-uk/1240 http://starbucks.co.uk/blog/starbucks-commitment-to-the-uk/1...
    - smoyer 14y ago
      You'd think these companies would be smart enough to show a small profit and pay the taxes on it ... You don't really gain anything by showing a loss.
    - arethuza 14y ago
      They aren't the same legal entity - it is entirely possible that the US parent company is profitable and the UK subsidiary loss making (or indeed vice-versa).
      - Nursie 14y ago
        That's not what's happening though, there are reports by the parent company that the UK business is profitable, when it suits them to boost share prices, yet reports from in country that there has been a loss so they can minimise taxes. I agree - it's possible that Starbucks UK is not pofitable, and that the parent company is, or vice versa. But reporting the same thing in different ways to different audiences seems fishy to me!
- appleflaxen 14y ago
  The question of immorality is irrelevant unless it is also illegal. It is the government's fault for putting so many loopholes in the tax code. They knew exactly what they were doing when they put them there, and have just as much culpability as Amazon, Google, and Starbucks.
- buro9 14y ago
  I'm not sure the law cares about morals. I do think though, that US law dictates that they must work for shareholder value. It's hard to see how we wouldn't end up here if they aren't actually breaking any laws on their way to this destination.
  - _delirium 14y ago
    That's actually a bit of a myth; companies don't have any explicit legal obligation to maximize shareholder value. In addition, courts tend to defer to their judgment on things such as intangibles; if a company says they're doing X because it's good for the company's image even though it loses money in the short term, a court will generally not second-guess that decision, especially since the shareholders have alternate means to reverse it if they disagree, such as voting out the board. To the extent the shareholders keep the board in place, they're presumed to agree with their decisions on where to take the company. The material that makes for a successful shareholder lawsuit tends to be more about things like favoring one class of shareholders over another, or executives making decisions for their personal gain. Earlier HN discussion: http://news.ycombinator.com/item?id=3227980 http://news.ycombinator.com/item?id=3227980
- brudgers 14y ago
  Businesses are neither immoral nor moral. They are amoral.
  - Nursie 14y ago
    They are. I don't think this is good though. Companies are made up of people, and these people are the ones taking the actions.
    - brudgers 14y ago
      These companies are based upon the proposition that the people who own them are not accountable for what the company does. Furthermore, to a large extent the people who operate the company are largely absolved for their actions. Corporations, like Nicheian supermen, are not subject to ordinary rules. If you were dodging taxes, your ass would be in court, not before parliament.
- bmelton 14y ago
  I would think of it more like 'couponing' than cheating the system. The companies in question are availing themselves of the laws available to them to get discounts on their tax obligation, just as an individual might claim their children as tax exemptions, and use charity contributions as write-offs. As you indicated elsewhere, morals and law do not necessarily align, and you are trying to attach morality to a legal obligation here. That companies do the same thing as everybody else does shouldn't be counted against them, especially as it is legal.
smoyer 14y ago
I don't want to hear the author crying about how bad tax avoidance is ... it's the tax laws that allow companies to behave that way in the first place. How about simplifying the tax code so it's neither profitable nor legal to manipulate the books. I'm guessing the UK would love to have the 12% taxes that are currently paid to the Swiss ... There's an easy solution! Set the tax rate to something reasonable. Start a tax war and set your corporate tax rate to 11%. Eleven percent of everything is going to be way more money than 30% of a loss right? I live in the US and would love to see the same thing happen here as our tax code is atrocious.
- Nursie 14y ago
  Oh yes, lets race to the bottom! That always turns out well!
  - smoyer 14y ago
    I think it would be a race to some balancing point rather than a race to the bottom. Why shouldn't governments maximize their tax incomes in the same way companies maximize their profits? I think here that balancing point becomes the maximum taxes gathered when weighed against competing tax bases. And the bottom has been reached if the profits are being parked in Bermuda ... that's an effective tax rate of 0% for the company and an effective income of 0 for the government too.
    - Nursie 14y ago
      They have another option though, instead of just trying to price themselves competitively they can change the rules and enforce better. A government doesn't have to compete like this if it holds the key to its market. If the rules are changed adequately you absolutely can say that they must pay to play, and pay what you ask. A mail-order company like Amazon is a different beast in this respect, but something like Starbucks which has hundreds or thousands of physical locations can't just set up somewhere else if you set the rules right.
      - 14y ago
Jabbles 14y ago
I'm not angry with companies that avoid tax legally. It's in their nature to maximise profits! Of course they'll do that if you give them the opportunity. I'm angry at our government for making it legal, by allowing loopholes and flawed laws to exist in the first place.
- mtrimpe 14y ago
  The thing is that to address this tax strategies would need to be aligned on a global scale. Accounting like this is very much like (grey-hat?) hacking; you have a very large and complicated system and you simply need to find the weakest spot. Defending against that can't really be done when you only have control over a single component of that system.
  - buro9 14y ago
    I'm pro-European, but I would argue that pulling out of Europe to force accounting for UK sales to occur in the UK legal domain might be a very good start. At least this way each country would be incentivised to enforce tax locally in a controllable and predictable way. And I'm sure that whilst some companies might wish to pull out, most would stay. a profit is a profit, it may be less than before but if you're still creating profit you wouldn't give it up.
    - toyg 14y ago
      That would actually have the opposite effect: corporations would simply "optimize" even more around the UK system, and it'd be easier for them to push money even further away from the reach of UK authorities. What is needed is a strong European effort to align taxation, which would remove any benefit from schemes like the Double-Dutch and Double-Irish, and then levy heavy taxes on capital flight outside European borders. This, of course, if our elites actually cared about tax evasion, which they really don't -- can't risk to find those revolving doors shut when it's your turn to bow out.
  - sseveran 14y ago
    Nothing about it is grey hat. The techniques for a global business to shift taxes into a low tax country is well known in an global tax planning group.
danmaz74 14y ago
These big corporations are playing divide et impera with European countries. It's very easy when each country has veto power on any important choice in the EU.
tonyedgecombe 14y ago
Corporation tax rates have plummeted in the UK over the last 30 years, perhaps we should bite the bullet and eliminate them completely. At the moment profits in a business are taxed, then when a shareholder receives those profits as a dividend they are taxed again but with some kludges to undo the double taxation. We would be better off dropping it and focussing on purchase and income taxes.
bruceboughton 14y ago
Surely the problem is that corporations are fundamentally difficult to tax as they do not reside anywhere. Individuals have an interest in living in the UK vs Ireland/Bermuda/Netherlands/etc. -- their family, their job, their lifestyle, their worldview, etc. On the other hand, corporations, especially multi-nationals, are an abstract concept. They do not have a need to reside in any one place or another, except for maximising profit. It makes little sense to try to locally tax entities that have no afinity to a location. Finally, at some point a corporation's taxes are distributed to people, via wages, dividends, etc. and these are taxed. This is also the easiest place to tax.
- Nursie 14y ago
  Starbucks runs coffee shops, they are most definitely tied to location. They are most definitely operating a business within the UK and should be subject to UK tax laws. It makes little sense to me to allow multinationals a huge advantage over local business by letting them whisk away their profits. These profits are indeed distributed to other people, in other places, not subject to UK taxes. It's not only (IMHO as I said below) immoral, it also distorts the market.
  - bruceboughton 14y ago
    Why question is why do we tax company's incomes at all? Direct taxes on companies such as PAYE (payroll), VAT (sales) and business rates (premises) are easier to enforce and scale fairly. Instead of taxing corporations' profits, why not tax individuals more and re-coup the taxes from the owners and employees instead of the corporations?
    - Nursie 14y ago
      One reason might be that (as we see here) it's easy for the company to make its profits disappear overseas, and the owners may well reside outside of the market in which the company operates. I agree there are probably easier things to enforce. OTOH a tax on company profits seems inherently reasonable to me - it scales down and is less of a burden on companies that are having a hard time, getting more of a take from the successful firms that can afford it.
jacques_chester 14y ago
"No man in the country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or property as to enable the Inland Revenue to put the largest possible shovel in his stores. The Inland Revenue is not slow, and quite rightly, to take every advantage which is open to it under the Taxing Statutes for the purposes of depleting the taxpayer's pocket. And the taxpayer is in like manner entitled to be astute to prevent, so far as he honestly can, the depletion of his means by the Inland Revenue" Ayrshire Pullman Motor Services v Inland Revenue [1929] 141 Tax Case 754. "Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one's taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands." Gregory v. Helvering 69 F.2d 809, 810 (2d Cir. 1934), aff'd, 293 U.S. 465, 55 S.Ct. 266, 79 L.Ed. 596 (1935)
- dabeeeenster 14y ago
  I don't think anyone is arguing against these sentiments, it's more a question of upholding the spirit rather than the letter of the law. I doubt much 1930's money was being filtered through Bermudan or Lichtensteinien shell companies.
  - jacques_chester 14y ago
    International commerce is not new, and the common law principle that the taxpayer is not obliged to maximise their tax bill is exactly the same and has been upheld consistently for centuries. Countries who want to make money via a territorial nexus usually use VAT or GST ... which the UK already does.
    - spindritf 14y ago
      > Countries who want to make money via a territorial nexus usually use VAT or GST Exactly, they have run into fundamental problems with income tax which is simply a bad tax scheme. From being counterproductive to easy to game (at a certain scale).
kriro 14y ago
I don't want to start a political debate but I think a decent argument could be made that companies should not pay any taxes outside of direct use taxes for infrastructure and so forth. Providing jobs and products people want is already quite the social contract contribution. At the very least a tax code that people can actually understand would be a decent start. I think it's pretty silly to point your finger at other countries for making "shady deals" with companies. Pretty much every nation does it, that's one of the reasons why tax codes are so complicated in the first place.
- danmaz74 14y ago
  So, for example, Starbucks should pay taxes based on how many km of roads they consume?
  - jules 14y ago
    Exactly. Via a tax on fuel for example. This is much easier to enforce, and sets better incentives than taxing income.
dabeeeenster 14y ago
Don't be evil.
digitalengineer 14y ago
Nothing new here. Even bands like U2 and Rolling Stones operate like this. As a citizen of a tax-haven (The Netherlands) I can tell you we the citizens are not able to use these tactics, only international corporations can.
bobsy 14y ago
I am angry with Amazon and Starbucks. I feel both of these have a large presence in the UK. They employ thousands of people. Amazon has done a large amount of damage to the UK high street. Starbucks has pushed out a number of independent coffee shops. The fact they are paying almost zero tax while being here I find abhorrent. I want Amazon and Starbucks here. However I feel both are taking the piss when it comes to taxes. Amazon say they run a distribution network or something and so only have to pay minimal taxes. I feel the fact that these companies failed to justify why they pay the tax they do prove that they are doing something wrong - even if its not illegal. As for Google I feel it is less of a problem. They mainly deal in digital goods. They don't have a big presence in the UK. They just offer their online service's here. As most of the tech work is done in the US or Ireland I don't think they have much to justify with their tax situation. I work for a website-as-a-service company and we have thousands of clients scattered around the world. Around 500 are based in the UK. I don't really see how we could accurately be charged tax based on geographical location of Sales.
- jonknee 14y ago
  > The fact they are paying almost zero tax while being here I find abhorrent. Almost zero for one tax, but they certainly pay lots of other taxes. Mom and pop coffee shops aren't known to be large tax payers either, they probably weren't paying much more than Starbucks is now.
  - DanBC 14y ago
    But mom and pop coffee shops are not making gazillions in profit and syphoning that off in weird accounting schemes to other territories. It's not avoiding a reasonable amount of tax that is annoying to most people. It is the transparent exploitation of loopholes to evade tax that is annoying. Eg: Starbucks has to pay starbucks to use the brand starbucks, which means starbucks pays less corporation tax here, but more in the country where they've registered the company that owns the starbucks brand. (Which just happens to be an office in a building in a country with a low corporation tax rate.)
    - 14y ago
stitchy 14y ago
As I read the article, I kept wanting to write "citation" in the margins for nearly every assertion that the author made. He is clearly passionate about the subject. I applaud the attempt to hold multi-national companies responsible for their actions. However, this read more like opinion and gut feeling than a well researched article. I want to know what the law says. Exactly what laws are being broken? What is the wording? Justify the statement that "each of the companies made such a mess of this event" with quotes and counter quotes. Don't just tell me your opinion.
monochromatic 14y ago
Moral high ground? The only moral directive of a corporation is to maximize shareholder value. The writer here sounds laughably out of touch.
antiterra 14y ago
I don't live in the UK, and when I'm there I generally avoid both Costa and Starbucks. Yet, from what I have read, it seems Costa has dropped the whole "fair trade" thing, while Starbucks continues to promote it. Does anyone have any idea if this difference incurs much in the way of cost? I know that Starbucks is convenient and consistent, but there are reasons other than their ethics to drink elsewhere. In London, at least, there's no shortage of UK coffee shops that make a product superior to both Costa and Starbucks. Prufrock Coffee and Department of Coffee are notable examples.
tehwalrus 14y ago
quick point 1: Murphy is a crazy left winger, seriously, try following him on twitter and not exploding. quick point 2: Seriously, income & profit generated from a country should be subject to the tax of that country. I don't know why this isn't obvious to everyone, especially HMRC/the Treasury when they write the rules. final point: I'm not sure companies should be taxed at all. Just make it law that anything accounted for as "profit" must be paid as dividends, and charge people income tax on the dividends. Do this at source, like PAYE, for all dividend payments leaving UK-active companies, even the ones headed to foreign citizens. (this would mean companies could re-invest in growth for free, but that that growth would have to take place in the UK.) Subject all "brand value" payments, and indeed all other transfers abroad, to scrutiny / valuation (should be easy for big companies, as there's only one brand.) This would work anywhere, not just in the UK.
gadders 14y ago
The fact is not that Amazon, Starbucks etc are paying so little, it's that small businesses are taxed so much in comparison. AFAIK none of these tax avoidance methods are available to small, single country companies. HMRC are happy to sue small companies, whilst cutting sweetheart deals with multinationals with deep pockets for lawyers. //edit//It seems like Laffer Curve applies to companies as much as it does people.
tomjen3 14y ago
Why has anybody linked to this kind of whiny shit? Of course corporations try to pay as little as possible to the tax man and of course they shop around for the best deal. They do so for paper, why not for tax?

143 points by Cbasedlifeform 14y ago

The 'Hollywood Accounting' that goes on in these multinationals is quite spectacular. Moving cash around between their various subsidiaries and national companies in such a way as to pay the least possible tax and to make strategic losses where convenient, all the while announcing record profits. I can see why you would try it on, the sums involved have to be huge, but it is fundamentally immoral to operate like that.

easytiger 14y ago
> fundamentally immoral to operate like that. err. no it isn't.
- Nursie 14y ago
  It is in my moral code - Availing yourself of a market and using the facilities and workforce of the UK, without chipping in your fair share (as decided by the people of that country). Sounds immoral to me.
  - Jach 14y ago
    I'm sure if the UK precisely defined what they mean by "fair share", and enforced their own laws regarding companies paying their "fair share", these companies would pay it. Or leave and do business elsewhere. Trying to do business without paying the legally required tax would be illegal, and immoral in your system, but not immoral in any system that views forms of income taxes as evil. (There are a lot of those around.)
    - Nursie 14y ago
      There are indeed a lot of people who view income taxes as evil. Many, many people including a lot of people in the UK. But that doesn't stop them being thought of as a necessary evil, and avoidance as worse. It's quite clear what the intent of the tax laws is, and it's quite clear that announcing a loss to the tax office but a massive profit to your investors is at the very least duplicitous.
      - easytiger 14y ago
        > It's quite clear what the intent of the tax laws is, If it was then what they are doing would be illegal
        Nursie 14y ago
        So in your mind there's never a loophole in a law or a conflict between the law as intended and the law as written or enacted by the courts? Interesting worldview there...
        easytiger 14y ago
        tax is a robbery anyway. We only pay it because the government will take away our personal freedoms if they didn't receive payment. Do you honestly think if tax was 100% voluntary people would willingly donate without being coerced into doing it?
  - CompiledCode 14y ago
    I agree. It's stunning to me that a bunch of executives and lawyers sat together and decided, we are going to take advantage of the infrastructure and workforce in the UK, but will avoid paying any taxes there, using these clever shenanigans. And because it saves money and is in the interest of the company, it's okay. That most ordinary people would agree that this is the right approach tells volumes about the society we live in.
  - easytiger 14y ago
    > It is in my moral code Someone out there has a moral code that encourages stoning women to death. Doesn't mean that has got anything to do with anything being as it is a vague and meaningless concept that doesn't inform governance. > Availing yourself of a market By which you mean acting as a VAT collection body and sending that money to the treasury for transactions within that market that occured under your business. > the facilities and workforce of the UK Would you rather the roads were empty because the people of the UK had no jobs? There are ways to address this issue as discussed endlessly. But the last thing this is is immoral. It may not be just nor fair, but those do no interact with the morality of a benign government and their laws and regulations. It doesn't help the argument but it is rhetoric that is being thrown around that as much as anything hinders progress on this issue
    - Nursie 14y ago
      Someone out there has a moral code... I didn't claim morality was objective, no need to behave as if I did. By which you mean acting as a VAT collection body... What are you trying to say here? That because they collect VAT that's ok and they should be exempt from other taxes? Would you rather the roads were empty because the people of the UK had no jobs? False dichotomy. It's not the ability to move profits abroad that keeps people employed in the UK, arguably it sucks money out of the country and is a net loss to our economy.
      - burke 14y ago
        > I didn't claim morality was objective, no need to behave as if I did. > it is fundamentally immoral to operate like that. Sounds pretty objectively-stated to me. Count me in the camp that disagrees with you. Normal people do all sorts of perfectly legal tricks to pay less income tax. They're not cheating; they're just paying the minimum they're legally required to pay. Same deal for business. Whatever they can get away with without breaking any laws is the minimum requirement. Paying extra tax out of some patriotic duty is illogical, as is not taking advantage of the perfectly-legal loopholes found. It is not up to the businesses to pay more tax than the current legal framework requires; it's up to lawmakers to amend the tax code so that 'undesirable' loopholes are closed. Businesses act to maximize profits. There is nothing immoral about this.
mtrimpe 14y ago
It's not fundamentally immoral; it's more of a tragedy of the commons. All these loopholes are perfectly legal and companies actually need to exploit them to remain competitive.If they didn't then any competitor could decide to do this and could earn 30% less and still make a bigger profit. It would of course have been great if the representatives had been self-aware enough to agree that they might not be taxed effectively in a global market and that they would be willing to co-operate with aligning global tax incentives in a way that leaves it a level playing field for all competitors; but that's probably a bit much to ask ;)
- Nursie 14y ago
  Whether it's a tragedy of the commons or not is orthogonal (IMHO) to a question of morality. Same with legality. I don't disagree with what you're saying otherwise.
  - davidp 14y ago
    It's better to treat matters of law as orthogonal to matters of morality, since the latter depends very much on the subjective judgment of the observer. Example: A company, acting "morally" as you define, pays more tax than it is required to under the law. In so doing, it incurs a loss so severe that it must cut staff in order to remain viable. Among those employees cut are some of the more vulnerable - those with low savings, poor health, or babies on the way. Has the company acted morally? Consider another issue: Should the same company pay more than its legal obligations in every jurisdiction to which it is subject? How should it allocate its extra giving? What if, in some of those jurisdictions, there's a good chance the extra money will simply go into private pockets via graft and corruption, instead of serving the public good? (There are such jurisdictions in the EU, yes?) These issues are not as clear-cut as you suggest. It's far better for the tax law to best reflect the morality of the citizenry, and then fully excuse the citizenry (including business entities) from seeking to legally minimize those taxes.
    - mercurial 14y ago
      That's disingenuous. You make it sound like your imaginary company goes to extra length to "pay more tax than is required under the law" while it's the complete opposite: these companies go the extra mile to game the system and pay a minimal amount of tax by exploiting failures in the system. There is no "extra giving" to consider, they should just be paying the same taxes other companies are paying.
smoyer 14y ago
"Fundamentally immoral" In the US a corporation's legal responsibilities are to it's shareholders ... it might be fundamentally immoral but it would be unethical to operate the company against the interests of the shareholders too. It's the laws that need to be changed rather than blaming the companies for being good at accounting.
- Nursie 14y ago
  It's an interesting conflict, and clearly they do have a duty to investors to maximise their profit. If it was a privately owned company it might be more clear cut. Absolutely agree the laws need to be changed. I, personally, would be looking to stop the 'convenient' reporting of losses in markets that are actually highly profitable but not tax efficient. There's an interesting comment on the Starbucks press release that coves it quite nicely - "How can Starbucks tell Companies House and HMRC that its UK business is loss-making but tell analysts in SEC-regulated calls that the UK business is profit-making, without either making misleading financial statements or filing false accounts?"
  - rfugger 14y ago
    http://starbucks.co.uk/blog/starbucks-commitment-to-the-uk/1240 http://starbucks.co.uk/blog/starbucks-commitment-to-the-uk/1...
  - smoyer 14y ago
    You'd think these companies would be smart enough to show a small profit and pay the taxes on it ... You don't really gain anything by showing a loss.
  - arethuza 14y ago
    They aren't the same legal entity - it is entirely possible that the US parent company is profitable and the UK subsidiary loss making (or indeed vice-versa).
    - Nursie 14y ago
      That's not what's happening though, there are reports by the parent company that the UK business is profitable, when it suits them to boost share prices, yet reports from in country that there has been a loss so they can minimise taxes. I agree - it's possible that Starbucks UK is not pofitable, and that the parent company is, or vice versa. But reporting the same thing in different ways to different audiences seems fishy to me!
appleflaxen 14y ago
The question of immorality is irrelevant unless it is also illegal. It is the government's fault for putting so many loopholes in the tax code. They knew exactly what they were doing when they put them there, and have just as much culpability as Amazon, Google, and Starbucks.
buro9 14y ago
I'm not sure the law cares about morals. I do think though, that US law dictates that they must work for shareholder value. It's hard to see how we wouldn't end up here if they aren't actually breaking any laws on their way to this destination.
- _delirium 14y ago
  That's actually a bit of a myth; companies don't have any explicit legal obligation to maximize shareholder value. In addition, courts tend to defer to their judgment on things such as intangibles; if a company says they're doing X because it's good for the company's image even though it loses money in the short term, a court will generally not second-guess that decision, especially since the shareholders have alternate means to reverse it if they disagree, such as voting out the board. To the extent the shareholders keep the board in place, they're presumed to agree with their decisions on where to take the company. The material that makes for a successful shareholder lawsuit tends to be more about things like favoring one class of shareholders over another, or executives making decisions for their personal gain. Earlier HN discussion: http://news.ycombinator.com/item?id=3227980 http://news.ycombinator.com/item?id=3227980
brudgers 14y ago
Businesses are neither immoral nor moral. They are amoral.
- Nursie 14y ago
  They are. I don't think this is good though. Companies are made up of people, and these people are the ones taking the actions.
  - brudgers 14y ago
    These companies are based upon the proposition that the people who own them are not accountable for what the company does. Furthermore, to a large extent the people who operate the company are largely absolved for their actions. Corporations, like Nicheian supermen, are not subject to ordinary rules. If you were dodging taxes, your ass would be in court, not before parliament.
bmelton 14y ago
I would think of it more like 'couponing' than cheating the system. The companies in question are availing themselves of the laws available to them to get discounts on their tax obligation, just as an individual might claim their children as tax exemptions, and use charity contributions as write-offs. As you indicated elsewhere, morals and law do not necessarily align, and you are trying to attach morality to a legal obligation here. That companies do the same thing as everybody else does shouldn't be counted against them, especially as it is legal.

smoyer 14y ago

I don't want to hear the author crying about how bad tax avoidance is ... it's the tax laws that allow companies to behave that way in the first place. How about simplifying the tax code so it's neither profitable nor legal to manipulate the books. I'm guessing the UK would love to have the 12% taxes that are currently paid to the Swiss ... There's an easy solution! Set the tax rate to something reasonable. Start a tax war and set your corporate tax rate to 11%. Eleven percent of everything is going to be way more money than 30% of a loss right? I live in the US and would love to see the same thing happen here as our tax code is atrocious.

Nursie 14y ago
Oh yes, lets race to the bottom! That always turns out well!
- smoyer 14y ago
  I think it would be a race to some balancing point rather than a race to the bottom. Why shouldn't governments maximize their tax incomes in the same way companies maximize their profits? I think here that balancing point becomes the maximum taxes gathered when weighed against competing tax bases. And the bottom has been reached if the profits are being parked in Bermuda ... that's an effective tax rate of 0% for the company and an effective income of 0 for the government too.
  - Nursie 14y ago
    They have another option though, instead of just trying to price themselves competitively they can change the rules and enforce better. A government doesn't have to compete like this if it holds the key to its market. If the rules are changed adequately you absolutely can say that they must pay to play, and pay what you ask. A mail-order company like Amazon is a different beast in this respect, but something like Starbucks which has hundreds or thousands of physical locations can't just set up somewhere else if you set the rules right.
    - 14y ago

Jabbles 14y ago

I'm not angry with companies that avoid tax legally. It's in their nature to maximise profits! Of course they'll do that if you give them the opportunity. I'm angry at our government for making it legal, by allowing loopholes and flawed laws to exist in the first place.

mtrimpe 14y ago
The thing is that to address this tax strategies would need to be aligned on a global scale. Accounting like this is very much like (grey-hat?) hacking; you have a very large and complicated system and you simply need to find the weakest spot. Defending against that can't really be done when you only have control over a single component of that system.
- buro9 14y ago
  I'm pro-European, but I would argue that pulling out of Europe to force accounting for UK sales to occur in the UK legal domain might be a very good start. At least this way each country would be incentivised to enforce tax locally in a controllable and predictable way. And I'm sure that whilst some companies might wish to pull out, most would stay. a profit is a profit, it may be less than before but if you're still creating profit you wouldn't give it up.
  - toyg 14y ago
    That would actually have the opposite effect: corporations would simply "optimize" even more around the UK system, and it'd be easier for them to push money even further away from the reach of UK authorities. What is needed is a strong European effort to align taxation, which would remove any benefit from schemes like the Double-Dutch and Double-Irish, and then levy heavy taxes on capital flight outside European borders. This, of course, if our elites actually cared about tax evasion, which they really don't -- can't risk to find those revolving doors shut when it's your turn to bow out.
- sseveran 14y ago
  Nothing about it is grey hat. The techniques for a global business to shift taxes into a low tax country is well known in an global tax planning group.

danmaz74 14y ago

These big corporations are playing divide et impera with European countries. It's very easy when each country has veto power on any important choice in the EU.

tonyedgecombe 14y ago

Corporation tax rates have plummeted in the UK over the last 30 years, perhaps we should bite the bullet and eliminate them completely. At the moment profits in a business are taxed, then when a shareholder receives those profits as a dividend they are taxed again but with some kludges to undo the double taxation. We would be better off dropping it and focussing on purchase and income taxes.

bruceboughton 14y ago

Surely the problem is that corporations are fundamentally difficult to tax as they do not reside anywhere. Individuals have an interest in living in the UK vs Ireland/Bermuda/Netherlands/etc. -- their family, their job, their lifestyle, their worldview, etc. On the other hand, corporations, especially multi-nationals, are an abstract concept. They do not have a need to reside in any one place or another, except for maximising profit. It makes little sense to try to locally tax entities that have no afinity to a location. Finally, at some point a corporation's taxes are distributed to people, via wages, dividends, etc. and these are taxed. This is also the easiest place to tax.

Nursie 14y ago
Starbucks runs coffee shops, they are most definitely tied to location. They are most definitely operating a business within the UK and should be subject to UK tax laws. It makes little sense to me to allow multinationals a huge advantage over local business by letting them whisk away their profits. These profits are indeed distributed to other people, in other places, not subject to UK taxes. It's not only (IMHO as I said below) immoral, it also distorts the market.
- bruceboughton 14y ago
  Why question is why do we tax company's incomes at all? Direct taxes on companies such as PAYE (payroll), VAT (sales) and business rates (premises) are easier to enforce and scale fairly. Instead of taxing corporations' profits, why not tax individuals more and re-coup the taxes from the owners and employees instead of the corporations?
  - Nursie 14y ago
    One reason might be that (as we see here) it's easy for the company to make its profits disappear overseas, and the owners may well reside outside of the market in which the company operates. I agree there are probably easier things to enforce. OTOH a tax on company profits seems inherently reasonable to me - it scales down and is less of a burden on companies that are having a hard time, getting more of a take from the successful firms that can afford it.

jacques_chester 14y ago

"No man in the country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or property as to enable the Inland Revenue to put the largest possible shovel in his stores. The Inland Revenue is not slow, and quite rightly, to take every advantage which is open to it under the Taxing Statutes for the purposes of depleting the taxpayer's pocket. And the taxpayer is in like manner entitled to be astute to prevent, so far as he honestly can, the depletion of his means by the Inland Revenue" Ayrshire Pullman Motor Services v Inland Revenue [1929] 141 Tax Case 754. "Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one's taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands." Gregory v. Helvering 69 F.2d 809, 810 (2d Cir. 1934), aff'd, 293 U.S. 465, 55 S.Ct. 266, 79 L.Ed. 596 (1935)

dabeeeenster 14y ago
I don't think anyone is arguing against these sentiments, it's more a question of upholding the spirit rather than the letter of the law. I doubt much 1930's money was being filtered through Bermudan or Lichtensteinien shell companies.
- jacques_chester 14y ago
  International commerce is not new, and the common law principle that the taxpayer is not obliged to maximise their tax bill is exactly the same and has been upheld consistently for centuries. Countries who want to make money via a territorial nexus usually use VAT or GST ... which the UK already does.
  - spindritf 14y ago
    > Countries who want to make money via a territorial nexus usually use VAT or GST Exactly, they have run into fundamental problems with income tax which is simply a bad tax scheme. From being counterproductive to easy to game (at a certain scale).

kriro 14y ago

I don't want to start a political debate but I think a decent argument could be made that companies should not pay any taxes outside of direct use taxes for infrastructure and so forth. Providing jobs and products people want is already quite the social contract contribution. At the very least a tax code that people can actually understand would be a decent start. I think it's pretty silly to point your finger at other countries for making "shady deals" with companies. Pretty much every nation does it, that's one of the reasons why tax codes are so complicated in the first place.

danmaz74 14y ago
So, for example, Starbucks should pay taxes based on how many km of roads they consume?
- jules 14y ago
  Exactly. Via a tax on fuel for example. This is much easier to enforce, and sets better incentives than taxing income.

dabeeeenster 14y ago

Don't be evil.

digitalengineer 14y ago

Nothing new here. Even bands like U2 and Rolling Stones operate like this. As a citizen of a tax-haven (The Netherlands) I can tell you we the citizens are not able to use these tactics, only international corporations can.

bobsy 14y ago

I am angry with Amazon and Starbucks. I feel both of these have a large presence in the UK. They employ thousands of people. Amazon has done a large amount of damage to the UK high street. Starbucks has pushed out a number of independent coffee shops. The fact they are paying almost zero tax while being here I find abhorrent. I want Amazon and Starbucks here. However I feel both are taking the piss when it comes to taxes. Amazon say they run a distribution network or something and so only have to pay minimal taxes. I feel the fact that these companies failed to justify why they pay the tax they do prove that they are doing something wrong - even if its not illegal. As for Google I feel it is less of a problem. They mainly deal in digital goods. They don't have a big presence in the UK. They just offer their online service's here. As most of the tech work is done in the US or Ireland I don't think they have much to justify with their tax situation. I work for a website-as-a-service company and we have thousands of clients scattered around the world. Around 500 are based in the UK. I don't really see how we could accurately be charged tax based on geographical location of Sales.

jonknee 14y ago
> The fact they are paying almost zero tax while being here I find abhorrent. Almost zero for one tax, but they certainly pay lots of other taxes. Mom and pop coffee shops aren't known to be large tax payers either, they probably weren't paying much more than Starbucks is now.
- DanBC 14y ago
  But mom and pop coffee shops are not making gazillions in profit and syphoning that off in weird accounting schemes to other territories. It's not avoiding a reasonable amount of tax that is annoying to most people. It is the transparent exploitation of loopholes to evade tax that is annoying. Eg: Starbucks has to pay starbucks to use the brand starbucks, which means starbucks pays less corporation tax here, but more in the country where they've registered the company that owns the starbucks brand. (Which just happens to be an office in a building in a country with a low corporation tax rate.)
  - 14y ago

stitchy 14y ago

As I read the article, I kept wanting to write "citation" in the margins for nearly every assertion that the author made. He is clearly passionate about the subject. I applaud the attempt to hold multi-national companies responsible for their actions. However, this read more like opinion and gut feeling than a well researched article. I want to know what the law says. Exactly what laws are being broken? What is the wording? Justify the statement that "each of the companies made such a mess of this event" with quotes and counter quotes. Don't just tell me your opinion.

monochromatic 14y ago

Moral high ground? The only moral directive of a corporation is to maximize shareholder value. The writer here sounds laughably out of touch.

antiterra 14y ago

I don't live in the UK, and when I'm there I generally avoid both Costa and Starbucks. Yet, from what I have read, it seems Costa has dropped the whole "fair trade" thing, while Starbucks continues to promote it. Does anyone have any idea if this difference incurs much in the way of cost? I know that Starbucks is convenient and consistent, but there are reasons other than their ethics to drink elsewhere. In London, at least, there's no shortage of UK coffee shops that make a product superior to both Costa and Starbucks. Prufrock Coffee and Department of Coffee are notable examples.

tehwalrus 14y ago

quick point 1: Murphy is a crazy left winger, seriously, try following him on twitter and not exploding. quick point 2: Seriously, income & profit generated from a country should be subject to the tax of that country. I don't know why this isn't obvious to everyone, especially HMRC/the Treasury when they write the rules. final point: I'm not sure companies should be taxed at all. Just make it law that anything accounted for as "profit" must be paid as dividends, and charge people income tax on the dividends. Do this at source, like PAYE, for all dividend payments leaving UK-active companies, even the ones headed to foreign citizens. (this would mean companies could re-invest in growth for free, but that that growth would have to take place in the UK.) Subject all "brand value" payments, and indeed all other transfers abroad, to scrutiny / valuation (should be easy for big companies, as there's only one brand.) This would work anywhere, not just in the UK.

gadders 14y ago

The fact is not that Amazon, Starbucks etc are paying so little, it's that small businesses are taxed so much in comparison. AFAIK none of these tax avoidance methods are available to small, single country companies. HMRC are happy to sue small companies, whilst cutting sweetheart deals with multinationals with deep pockets for lawyers. //edit//It seems like Laffer Curve applies to companies as much as it does people.

tomjen3 14y ago

Why has anybody linked to this kind of whiny shit? Of course corporations try to pay as little as possible to the tax man and of course they shop around for the best deal. They do so for paper, why not for tax?