By Nigel Green
Starbucks' decision to voluntarily pay more corporation tax in the UK is being hailed as a victory by MPs and so-called 'tax activists', yet it should be a move that sets alarm bells ringing as it could undermine already weak economic growth.
The US coffee giant said on Monday it is reviewing its tax position with HM Revenue & Customs, following publication of a scathing report by the public accounts committee which was based on MPs' recent grilling of executives from several multinational firms, and as George Osborne confirms new resources to beef-up HMRC's tax avoidance tactics.
Starbucks stressed that it had complied with UK tax laws, but it added: "We have listened to feedback from our customers and employees, and understand that to maintain and further build public trust we need to do more."
This climbdown by the coffee chain sets a dangerous precedent because foreign firms will be deterred from investing in this country in the future because they could, at the whim of a committee of MPs, suddenly find themselves publicly pressurised into paying more tax than they are legally obligated to.
A tax system which is based on 'donations' as a result of blistering attacks from MPs on a handful of high-profile companies, flies in the face of George Osborne's oft-repeated message that 'Britain is open for business'.
Indeed, such a system reinforces the message and heightens the perception that the UK is a high tax risk jurisdiction. This, at the very time when the UK economy needs all the support it can get – as the chancellor's autumn budget tomorrow will, no doubt, reflect.
For MPs to complain - and to take the moral high ground – on this, when they are the ones who have the powers to change the tax laws, smacks of hypocrisy and political opportunism.
The notion that multinational companies such as Starbucks, Google and Amazon are 'getting away' with mitigating their taxes is, frankly, ludicrous as tax mitigation is perfectly legal.
Knowing this, politicians have accused these firms of being 'immoral'. However, unlike charitable donations, tax is not supposed to be a moral issue. Tax is a legal impost and it is corporations' duty to comply with the law and organise their financial affairs so as to pay what they are required by the government.
Current British laws are such that multinationals are able to enjoy a competitive advantage over their UK-only competitors. This is not the fault of the firms, but rather the consequence of overly complex regulations set by parliament.
What is immoral, however, is for politicians to publicly lambast and damage the reputations of certain firms, which create huge amounts of jobs and wealth in the UK, when they are acting legally.
These companies must not cower to the opportunism of MPs. They need to show some backbone on this issue by placing the ball back in the court of the government.
Indeed, it might very well be the case that the laws need to be overhauled, but until that point the witch-hunt must be called-off.
The unveiling of a £154 million 'blitz' on those who mitigate their taxes is, of course, well-timed for Mr Osborne. Unlike many tax-related matters going head-to head with businesses which pay less tax than some might hope, is likely to ward off some of the negative headlines that his bleak autumn statement will almost certainly generate.
Nigel Green is the founder and chief executive of the deVere Group, the world’s largest independent financial advisory firm. Established in 2002, the company currently has in excess of $8 billion of funds under administration and management, and more than 60,000 clients in over 100 countries.