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Tony Wickenden: Wake up and smell the coffee on corporate tax avoidance

wickenden

Corporation tax is a big contributor to the Treasury’s purse. Last year, the yield rose by 25 per cent from £3.2bn to £4bn.

This was against the backdrop of the Government cutting the main rate of corporation tax to 20 per cent and moving to a new single rate. No more small profits rate, no more marginal relief. The move has been aligned with a relentlessly determined approach to stamping out aggressive tax avoidance.

The front pages have been full of the Government’s approach to individual tax avoiders – the rich and famous in particular. They make good headlines.

The plan to defeat tax avoidance, especially by individuals, has been built on an impressively aligned strategy incorporating the General Anti-Abuse Rule, targeted anti-avoidance rules, pursuing purposive judgements in the courts, the widening of the Disclosure of Tax Avoidance Schemes net, the issuing of accelerated payment notices and, of course, public naming and shaming.

The first three components clarify and limit what will be treated as aggressive tax avoidance and what action will be taken, effectively limiting planning to that which is acceptable to HM Revenue & Customs.

The fourth (the Dotas expansion) represents an enhancement to the effective early warning system to HMRC and gives it the platform from which to issue all-important APNs. These, in turn, facilitate the potential for the collection of tax in advance on Dotas schemes.

By way of further explanation, APNs help HMRC cash flow. The innovation of APNs (and “follower notices”) represents an effective flipping of the presumption in relation to the schemes for which APNs are issued.

The APN and the advance payment of tax demanded means, effectively, that the tax avoidance scheme is treated as failing (requiring a potentially returnable deposit of tax) before its effectiveness has been determined.

Last but not least, naming and shaming represents an incredibly powerful means of influencing attitudes and behaviours in relation to aggressive tax avoidance.

It has substantially killed off “popular” and specialist demand for aggressive schemes, which has proved much more effective than trying to limit supply or punishing (through legislation or litigation) taxpayer behaviour.

But despite the publicity given to individual tax avoidance there is no doubt the Treasury is seriously aware that the (tax collecting) opportunity cost of corporate tax avoidance is immense. Big, companies generate big revenues and from big revenues should come big tax demands and receipts.

However, this seems often not to be the case, particularly when it comes to global companies. This causes media, official and public ire. A pretty powerful triumvirate is it not?

Just recently, coffee and tax has raised its head again. The Starbucks versus the Margaret Hodge-led Public Accounts Committee standoff is the stuff of fiscal legend. Let’s not forget, by the way, that Starbucks, out of the goodness of its own mocha-centric heart, paid over £20m to the Treasury. It did not have to, it just did. Have a nice day, UK!

The latest coffee tax talking point is based on Ethical Consumer magazine’s recent survey of the tax machinations of the various coffee chains over the last year.

Café Nero brought attention to itself (in a good way, it hoped) when it decided to stop stocking milk from farms in areas that culled badgers. However, it seems badger-loving Café Nero is also a fan of Luxembourg and the Isle of Man. Café Nero (or should it be Café Zero?), it seems, has paid no corporation tax since 2008 – not even as much as a pannatone (which sounds like it could be a unit of currency at least somewhere in the world doesn’t it?).

So Starbucks and Café Nero have questionable tax history. Does the public care? Does tax have the power to generate coffee-centric vente vitriol? We’ll see next week.

Tony Wickenden is joint managing director of Technical Connection

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. Starbucks £20m – it isn’t tax, they had no liability, so what is it? PR? Marketing? Wonder if they claimed a deduction for it in their tax comps?

  2. Oh Tony – not you too. Avoidance is legal. Evasion is illegal. Indeed it is the duty of companies to minimise their tax liability.

    Starbucks. So they managed legally to minimise their tax liability as has Café Nero. However look at the employment they have created, the rents they pay, the VAT that is levied, the tax that the employees pay. What about the return to shareholders? 25 years ago these firms didn’t exist in the UK – if they upped sticks and left the UK what would be the cost?

    When I ran a manufacturing firm many years ago we minimised our CT liability (often to zero) by buying new machinery (100% 1st year write downs were allowed in those days). Result – a growing company. Grater productivity and the value of the firm increased.

    It’s much more than a simple matter of tax. It is the contribution to GDP that should also be considered. Unfortunately impecunious Governments who prefer to spend than invest seem to be unfailingly inept.

  3. Harry
    I’m afraid that your view is so last century!
    I believe the landscape has changed, both politically and practically, and there is now a 3-dimensional approach to tax. Tax evasion is still illegal as it always was; tax planning (which is what you engaged in with your capital allowances in a former life) is still perfectly legal as it uses clearly defined and targeted legislation aimed at achieving particular outcomes; tax avoidance now sits in-between in a no-mans land where it can easily be dragged into the unacceptable and disallowed.
    What Tony I believe is trying to point out is that corporate tax planning of the sort conducted by the likes of Starbucks and Café Nero is quite frequently artificial, contrived, and a mix-and-match of various reliefs and loopholes that were never intended to produce the end result that the “schemes” produce. This places them firmly in the unethical camp, and it is therefore hypocritical of companies that use these measures to try and claim some marketing advantage from adopting some dubious “ethical” stance in their products.

  4. @Kevin
    I perfectly understand. I merely gave my own example, but I can give an illustration of other tax planning that went on in the 70’s. Please remember that in those days the top rate of tax was 83% – not counting investment income surcharge. But few paid it. Apart from what you call legitimate planning – such as full tax relief on mortgages and loans, there was also full tax relief on leasing. I know of those who actually leased the suit they stood up in. Entertaining was fully tax deductible – so long executive lunches on expenses were de rigeur. Oftern the wife came along too. I even knew of one bloke who leased a flat in which to ensconce his mistress!

    If the rules are framed in such a way that firms such as Starbucks can take advantage – good luck to them I say. It is up to the various Governments to frame laws in a suitable way. Why shouldn’t things be black and white? This penchant for shades of grey only gives inept Governments an excuse for having things both ways.

    As I said previously – what about all the plusses that firms such as Starbucks have added to the UK GDP?

    And pray tell – what’s wrong with being last century? Compared to what I have seen so far in the 21st, bad as it sometimes was in the past, there were still some things to commend it. At least the Government made the rules. They didn’t consult or ask for feedback. So the business community wasn’t doing their job for them, or giving anything away. We just looked for and exploited the loopholes.

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