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Multinationals avoid up to £5.8bn in UK tax, HMRC finds

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Newly published numbers mark 50% increase over previous government estimate

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Global firms such as Starbucks, Google and Amazon have come under fire for avoiding paying tax on their British sales. There seems to be a growing culture of naming and shaming companies. But what impact does it have?

Companies have long had complicated tax structures, but a recent spate of stories has highlighted a number of tax-avoiding firms that are not seen to be playing their part.

Starbucks, for example, had sales of £400m in the UK last year, but paid no corporation tax. It transferred some money to a Dutch sister company in royalty payments, bought coffee beans from Switzerland and paid high interest rates to borrow from other parts of the business.

Amazon, which had sales in the UK of £3.35bn in 2011, only reported a "tax expense" of £1.8m.

And Google's UK unit paid just £6m to the Treasury in 2011 on UK turnover of £395m.

Everything these companies are doing is legal. It's avoidance and not evasion.

But the tide of public opinion is visibly turning. Even 10 years ago news of a company minimising its corporation tax would have been more likely to be inside the business pages than on the front page.

What changed? And is "shaming" of companies justifiable and effective?

Momentum has been growing for the last few years.

In September 2009, the Observer ran with the headline: "Avoiding tax robs our public services, declares minister". The paper reported that the government was planning to say tax is a "moral issue" and that it was "determined to end avoidance and evasion."

October 2010 - and the Vodafone case - saw the Daily Mail report: "Vodafone closes Oxford Street store at £6bn tax protest".

A few months later and the focus moved to Sir Philip Green's business empire. "Crisis? What crisis?" reported the Mail, which said the TopShop boss was "enjoying" a Barbados holiday while thousands of campaigners laid siege to his UK stores.

Barclays Bank was the next target - in February 2011 the Daily Express reported on the "raid" by tax protesters, who shouted: "Dave and George do your sums." Later that same month, the Guardian ran with the headline "UK Uncut: 'People are starting to listen to us'".

To some extent, the shift is down to the recession, according to Dr Stuart Roper, a corporate reputation expert at Manchester Business School.

"We are in an age of deep public spending cuts and real austerity. And this [tax avoidance] is not a victimless crime, if you like. If this was six or seven years ago, pre-financial crisis, I don't think it would have had the same impact it's had now," he says.

War on Want's tax justice campaigner Murray Worthy says there has also been a change in public perception.

"As the public have got to understand better what corporate tax avoidance is, there is a clear sense of outrage that is going well beyond a small group of protesters - it's something that the public feels is really not right with the current system," he says.

Discussions of the ethics of tax avoidance are now everywhere. But a few years back, it was a hardcore gaggle of activists and campaign groups like UK Uncut that were staging sit-down protests in stores such as the Arcadia Group, Boots, Vodafone and Fortnum and Mason.

Journalists and newspapers are also doing their own investigations, argues Worthy, with the appearance of Google, Starbucks and Amazon before the Public Accounts Committee a result of stories by the Daily Telegraph, Reuters and the Guardian respectively.

In a report published on Monday, the committee's chairwoman Margaret Hodge said the level of tax taken from some multinational firms was "outrageous" and that HM Revenue and Customs needed to be "more aggressive and assertive in confronting corporate tax avoidance".

MPs also called for those who do not pay their "fair" share to be named by the government, but Prime Minister David Cameron and Chief Secretary to the Treasury Danny Alexander ruled it out, saying it would breach taxpayer confidentiality.

But just how effective is tax shaming anyway?

The idea that Starbucks would voluntarily pay more tax than it legally needs to seems extraordinary on the surface, and an argument for the effectiveness of tax shaming.

"Up until yesterday, I wouldn't have thought these stories had much effect. I thought companies would carry on doing what they were doing, but look over their shoulder, in terms of their reputation," says Michael Devereux, a tax expert at Said Business School, University of Oxford.

"Starbucks appears to be saying they don't think they owe any more money, but will pay anyway. If that's true, it's having a reputational effect - but it's a bit odd in terms of the tax system, we wouldn't want the tax system to be voluntary," he says.

Branding experts agree the reputational side of things is key, as it is hard to measure the direct impact of tax shaming on sales and profit.

Dr Sue Bridgewater, a marketing expert at Warwick Business School, says if a company with a strong brand damages that, it also damages its financial "value".

"Customers have very long memories and their emotional tie to a brand is a very important part of the loyalty," she says.

But Roper says even reputational damage is difficult to ascertain and can quickly dissipate.

Another impact of tax shaming is that individuals can boycott brands, but Roper says the number of people who take direct action is "relatively low".

What is more dangerous for companies is social media, he says - citing #boycottstarbucks, which was formed in the wake of the Starbucks story - because "a small number of people [can] activate and ferment dissent among another group".

But is tax shaming justifiable?

Amazon, Starbucks and Google are by no means unique in minimising their UK tax liability. And individuals often try to lower their own tax bill by exploiting rules in inheritance tax, or gifting to charity.

Bridgewater says large multinational corporations have been using various methods of being "tax efficient" for decades, and it is "probably sound business practice".

"The issue arises when we feel that a company has crossed a line and what it does to be tax efficient is morally, if not legally, inappropriate," she says.

For a lot of companies, it is about fairness, according to Simon Walker, director general of the Institute of Directors.

"It is very frustrating for many companies who pay large tax bills that some multinationals are able to avoid doing so.

"The solution must be simplifying the tax system, not simply hectoring from Westminster. If these firms are immoral to take advantage of tax loopholes, then politicians are surely immoral for creating the loopholes in the first place. Taxes should be simpler to cut down on avoidance and relieve the burden our complex tax code puts on companies who do try to do the right thing," he says.

The director-general of the CBI, John Cridland, agrees the crux of the debate comes down to fairness.

"A company may be making good revenues but pay lower amounts of tax for completely legitimate business reasons. But if it's doing this by using so-called 'black-box' arrangements, where transactions are designed for no commercial purpose at all, other than to avoid tax, then the CBI does not condone it, even if it is legal," he says.

He says if the government wants a different result from the tax system, it must change the rules.

The pressure to do so has rarely been greater.

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Google, Amazon, Starbucks: The rise of 'tax shaming'

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Global firms such as Starbucks, Google and Amazon have come under fire for avoiding paying tax on their British sales. There seems to be a growing culture of naming and shaming companies. But what impact does it have?