Making Starbucks pay in the UK should not be taxing

Instead of expending much time and energy bringing in new measures and closing loopholes, why not just keep it simple? Introduce a sales tax on everything sold by global businesses like Google, Starbucks and Amazon. This would be a fair and straightforward way to ensure that the Treasury receives a reasonable take from the very large revenues generated here by global companies.

It would instantly stop these companies from hiding income behind sophisticated offshore royalty, licensing and management arrangements to wholly owned subsidiaries. It would work by levying a tax charge based on the sales income in one jurisdiction – in this case the UK - and be designed to counter the complex transfer pricing mechanisms global businesses use to shift profits into more favourable tax regimes.

Crucially, it would also avoid the public pillorying of these very important parts of our economy. Politicians, and others with little understanding, fail to appreciate the fact that we need to be encouraging global players in the UK, not giving them a pasting. Politicians who have been quick to stand up and hammer Starbucks and others for not paying more tax than they need to (and, frankly, who would?) conveniently forget the huge numbers of jobs these companies provide.

Starbucks has ‘volunteered’ to pay £20m tax to repair its tarnished reputation as a responsible global player. However, we do not want global businesses to pay tax on a voluntary basis depending on public sentiment. While Starbucks should co-operate fully with any review of its arrangements, it is crucial to remember that they are breaking no laws. They do not evade tax, they avoid it, and that distinction is at the heart of our tax code.

Currently our UK businesses and entrepreneurs are not paying taxes on a level playing field with the global giants. UK based businesses cannot use transfer pricing to reduce or eliminate their tax bill, while global companies can move profits out of the UK through a variety of complex transactions, including excessive charges for royalties, marketing or management charges and finance charges.  Our UK tax regime already has adequate provision for HMRC to challenge the basis for these payments if the charges levied are excessive and are being used to shift profits. But it appears neither HMRC nor their political masters have had the appetite to challenge these global businesses.

It is time HMRC and the politicians showed some teeth and used their existing powers to recover the taxes properly due from these global giants. If the problem is that the transfer pricing practices adopted are too complex, we need to move to a simpler basis of taxing global business on their sales.

A sales tax, at a modest percentage, would yield a great deal of money, be fair, and be utterly transparent, which is surely a big improvement on the current arrangements that have caused such controversy.