Taxing reputations

Starbucks has UK sales of £400m annually but arranges its affairs so that it has paid no UK corporation tax in the last 3 years.  It has paid £8.6m over 14 years.  Whitbread's Costa turns over less but pays about £15m annually.  It's all legal but is it right?  And who decides?

Before social media, companies could make tax avoidance decisions confident that their ultimate customers wouldn't find out, or if they did, they wouldn't be able to do anything about it.  So the company's decision was left unchallenged.  As long as it was legal, that was fine.  End of story.

No more.  A second question now has to be asked: 'Is it right?'

It's not the company's resident ethicist who has to answer.  Particularly when customers can easily defect (coffee), the stakeholders that matter most are the ultimate customers. Even where defections aren't easy (banks) politicians can dispense plenty of damage if they think their constituents don't like what they see.

For Starbucks, now roundly made a subject of mochary even in the FT, and apparently facing a "brand catastrophe",  retail customers matter most.  The internet makes it easy to organise boycotts against those seen as bad citizens.  If it ain't right in the public's eyes, beware of customer defections.  Or having to spend a small fortune avoiding them. 

Anthony Hilton quoted the senior tax partner at a Big Four accountant yesterday.  "I think  I have done a good job for my client saving £10m on their tax bill.  Then I find it cost them £100m in reputational damage."

As Homer Simpson would say, D'oh!  This is hardly a new issue.

Anthony Fitzsimmons
Reputability
London
www.reputability.co.uk

 Anthony Fitzsimmons is Chairman of Reputability LLP and author of “Rethinking Reputational Risk: How to Manage the Risks that can Ruin Your Business, Your Reputation and You”