Learn the lesson of Google and Starbucks: tax is ethical practice

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The issue of tax avoidance is hardly a new one. For instance, you may not think the Welsh border-county of Powys was capable of sparking a national debate on the subject, yet in 2015 the small town of Crickhowell (population, 2,801) did.

The Powys tax rebellion attempted to take the town ‘offshore.’ A novel idea, it led to a BBC documentary, extensive national coverage, and even a petition demanding Steve Lewis, a town ringleader, be given a place on HMRC’s board.

With tax avoidance readily in the minds of the public, news that Google agreed to pay £130m in tax was supposed to put questions surrounding the companies’ UK profitability to bed. Instead, it has brought to the forefront of people’s minds the same concerns that the residents of Crickhowell raised: that one set of rules exists for multinational firms, while ‘the rest of us’ pay our share.

Objections were publically raised by the chairman of the Commons Public Accounts Committee, the question was raised at PMQs on behalf of “Geoff”, and it was “not a glorious moment” for the government, according to the Business Secretary. For a few days last week, Google stood on the edge of the same cliff that Starbucks faced in 2012.

The reaction in 2012 was damaging to Starbucks, sure. Yet while 1,000 people from UK Uncut disrupted business across London, there were few store closures, no bricks thrown, and the company continues to operate and expand throughout the UK. The damage, however, has been both deeper and harder to quantify.

Reputation management increases in importance – yet tax gets ignored

The importance of corporate reputation shouldn’t need explaining. It should be no surprise that the 2015 AON Global Risk Management Survey, with over 1,400 respondents including CEOs, CFOs and senior risk managers, ranked damage to brand reputation as the top concern.

This finding is corroborated by consumers, who rank corporate “goodness” as the second most important factor after quality for driving repeat purchases, according to the Brand Goodness Report.

Behind every company lies a product that needs purpose; a justification for people to buy, use, promote and engage with a service or idea. Ethics, or Corporate Social Responsibility (CSR), covers everything from gender equality to charitable donations and, you guessed it, paying tax.

Given the importance of reputation management, and the necessity to combine tax payments with ethical practice, it should be a surprise that Starbucks returns to the news, though this time over The Netherlands fighting the EU over a tax order. For Google, the prospect of an inquiry by The House of Commons Treasure Committee should also be reason to worry.

Damage to reputation is just as potent a risk factor as a sexual harassment case or supply chain failure, so why should tax be ignored? When even Manchester United footballers get coverage for avoiding road tax, the message to corporations could not be clearer:

Companies like Google should feel obliged to cough up. Not just because it is morally right, but because it will not damage business as much as negative front page coverage.

Blog author: @GraylingUK