Wilting under the intense heat of public opinion, Starbucks announced its decision to open talks with HMRC with a view to restructuring its tax affairs so it becomes tax paying in the UK. Starbucks did this in direct response to the damage to its brand in the court of UK public opinion. This is understandable given that the concept of ‘fairness’ is central to how it promotes its business model around the globe.
With George Osborne making the surprise announcement that corporation tax will reduce from the current rate of 24% in 2012/13, to 23% in 2013/14 (announced previously) and to 21% in 2014/15, it would appear that Starbucks decision to pay tax in the UK may have unintended benefits.
Now that the UK will have an even more favourable tax rate in the near future compared to the US (40%) or Germany (29%), multinationals may take the view that they could reap the intangible brand related benefits of paying a ‘fairer’ amount of tax in the UK whilst becoming more tax effective overall by bringing more substance based economic activity to the UK. This is over and above other advantageous tax aspects of the UK tax system such as the absence of a withholding tax on dividends and broadly generous tax treatment of interest deductions.
Now that really is an extra shot!