Tax avoidance is beginning to hit multinationals’ bottom lines

Starbucks tax avoidanceIt used to be that tax avoidance saved businesses money. For decades, the world’s biggest multinational companies have been quietly shifting profits into tax havens to legally lower their tax bills and few but the most hardened activists batted an eyelid.

The financial crisis has changed everything. With the public feeling the pinch of punishing austerity, people have begun to wake up to how the global tax system operates and they don’t like it one bit. Tax avoidance may be legal, but its morality sits squarely in the dock.

New evidence has emerged suggesting that the reputational damage companies are taking from being exposed for tax avoidance scandals is beginning to hit them where it hurts. Now tax avoidance is costing them money.

A ComRes survey about public perceptions around tax avoidance, commissioned by Christian Aid, found that 34% of British people are currently boycotting the products or services of a company because it does not pay its fair share of tax in the UK.  A further 10% say they are considering a boycott.

“What this survey shows is that one in three people are actually prepared to change their buying habits and boycott some of the firms seen as not paying their fair share in the UK. This surely must be a wake-up call to all businesses,” said Joseph Stead, Christian Aid’s senior economic justice adviser.

There is a caveat, of course. Google is one of the most prominent companies to be exposed for tax avoidance in recent months and it’s unlikely many people have boycotted a search engine which has embedded itself as a verb in the dictionary and the public consciousness. No doubt many people learned of the scandal through Google news.

But for highly brand-orientated public facing companies like Starbucks, there is a serious problem.

Within a week of being exposed for tax avoidance, Starbucks’ YouGov BrandIndex reputation score fell from 4.6 to -3.9 and research by Manchester Business School predicted the scandal could contribute to a fall in UK sales of 24% in the next year.

“I’m certainly not going to buy any coffee from them,” David McNair who, as Christian Aid’s former principal economic justice adviser headed the charity’s tax and CSR campaigns, told me.

“Personally it would make me think twice about drinking there again,” agreed ActionAid’s Chris Jordan.

Despite initially attempting to shrug off the negative headlines by saying it had acted entirely within the law, Starbucks soon realised that acting within the law was no longer enough and opted to voluntarily pay £20 million in UK taxes over the next two years, regardless of the profit it makes.

It’s a sign of things to come. Starbucks has gone to great pains in recent years to boost its CSR credentials by trumpeting fair trade products and environmentally sustainable practices, but all that good work was undone overnight with one negative tax story.

The world is changing and companies must be sure they do not get left behind. It is high time that multinational corporations build tax into their CSR policies. If not for the good of the societies in which they operate, then for their bottom lines.

This article was originally written for Liberal Conspiracy

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