Does Your Company's Tax Policy Matter To eBusiness?

Today is, apparently, Cyber Monday in the UK. But there's a more interesting story in the UK's eCommerce market. It's about tax.

The debate is about the tax policies of a number of prominent multi-national businesses that operate in the UK, including Amazon, eBay, Google, Starbucks and Vodafone, most of which pay little or no Corporation Tax, which is levied as a percentage of profits. (It's relatively easy and perfectly legal for a subsidiary of a multi-national company to avoid taxes on profits in one country by buying services from a sister company in another country so that it makes no profit in the first country.)

Today, the Public Accounts Committee of the House of Commons published a scathing report on tax avoidance by multi-national companies operating in the UK. As the report puts it about Starbucks, which has made no profits in the UK for 14 of the past 15 years: "We found it difficult to believe that a commercial company with a 31% market share by turnover, with a responsibility to its shareholders and investors to make a decent return, was trading with apparent losses for nearly every year of its operation in the UK." What the committee says about Amazon is, if anything, worse.

What's the relevance to eBusiness? While it's uncomfortable for Google and Starbucks to be in the limelight for the wrong reasons, demand for both information and coffee is (presumably) fairly constant through the year. But for retailers Amazon and eBay, the timing couldn't be worse, because this debate is taking place in the run-up to Christmas, the crucial sales period for all retailers in the UK.

This debate raises three questions:

  1. Do customers care? These companies have done nothing legally wrong. So it's about morality (i.e., whether it's morally right to avoid tax). Some prominent news media, like The Guardian (e.g., here), Evening Standard (e.g., here) and The Mirror (e.g., here), have published calls for a boycott of tax-avoiding companies, and it was the BBC's lead news story at lunchtime today. Yet there's little sign of a substantial consumer boycott as many customers evidently either don't care or believe that they can't afford to not to buy from companies like Amazon.*
  2. Are tax practices giving some companies a substantial competitive advantage? Minimizing tax liabilities leaves more profits to be either returned to shareholders or re-invested in marketing or lower prices for customers.
  3. What's your company's tax policy? In an age of empowered customers, your company's social responsibility matters -- but perhaps tax policy doesn't matter enough to change most people's online shopping behaviour.

My hunch is that the outcome from this will be limited, and that customers won't avoid the tax avoiders in large numbers. Convenience will probably trump morality. But let's see.

Benjamin

*It's a sign of just how dominant some companies have become that people honestly believe that they have no attractive alternative.