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Tax avoidance by large multinational companies in the UK is unfair to small businesses

 

Starbucks has recently been in the news after it came to light that they have reportedly paid no tax in the UK for the last three years. Reuters has suggested that the company is making use of offshore licensing, steering profits to Switzerland, and intra-group funding to reduce the profits they earn in the UK. This has resulted in the company reporting losses, whilst expressing to investors how successful the UK arm of the business is. This contradiction is the result of tax avoidance through the use of an entirely legal method.

Tax avoidance in the UK is not limited to Starbucks. A number of large multinationals are known for using legal tactics to dodge tax bills. For example, Google had revenues in the UK of £2.6bn (US$4.2bn) in 2011 but managed to pay just £6m (US$9.6bn) in tax. According to analysts, Facebook had a UK turnover of £175m (US$280.7m) but paid only £238k (US$382k) in tax in 2011. Similarly, Apple bases its European headquarters in Ireland in an attempt to reduce its UK tax bill.

None of these companies are acting illegally. They are acting within the rules set by the UK government. Whilst it is entirely understandable that the government in the UK would want these large companies doing business in the region in difficult economic times, this does not remove the fact that it is unfair on businesses who operate and pay their full tax bill in the UK.  These multinational companies are gaining a clear competitive advantage over smaller businesses located in the UK. It would perhaps be justifiable to suggest that if there were to be any advantage to be gained in terms of tax, it should go in the favor of small, local businesses. However, this is clearly not the case.

The case of Starbucks has helped to raise the issue of the unfairness of tax policy in the UK. There have been many calls for a more transparent and fair system. However, since a large number of companies operating in the UK use tax avoidance methods in one way or another, it is probably rather unlikely that the system will change anytime soon.

A Starbucks company profile is available here

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