Where have all the tax avoiders gone?

A new holding company created in the Cayman Islands expressly to sell assets worth tens of millions of dollars. Those assets assigned an accounting value of zero, effectively invisible in the company’s balance sheet. An “arbitrary” US$10,000 cash injection explicitly designed to activate a tax law permitting a “total tax free gain of about US$60 million”, calibrated not to affect the “commercial effects of the transaction”.

Obligatory tax-blog picture of the Cayman Islands. Pretty, isn't it. (Creative Commons slack12/Flickr)

What label should we give to engineered offshore transactions designed to avoid paying tax? I used to think I knew the answer to that question, but as 2014 draws another turbulent year of tax controversies to a close, I’m not so sure.

An odd cross-current has become detectable in the “tax avoidance” debate this year. The professional and business side of the debate used to be dominated by a fairly standard position: boiler-plate defensiveness crossed with ‘Duke-of-Westminster’ fundamentalism about the legal and ethical neutrality of shrinking one’s tax bill to the legal minimum. Over the last twelve to eighteen months almost every vocal big business, business association and tax professional body has moved away from that previous default. Almost everyone now accepts that choices between filing positions have consequences – if not ethical then at least reputational - that taxpayers should take into account. But in the next breath there tends to follow a second sentiment: that one’s own behaviour has either already changed, or didn’t need to change in the first place; that the scale of corporate tax avoidance has been overblown; and that in any case the corporate income tax isn’t a very good idea to start with.

Eight speculations

I know, I know: bloggers should resist the urge to speculate about a company’s tax affairs unless they’ve really spent a good long time scouring company registries, reading court cases, talking to people in and outside the company, corresponding with tax directors. Doing their best to review everything that’s in the public domain, and as much of what isn’t as they can get their hands on.

I haven’t, it’s fair to say, done all this with Starbucks.**

But Starbucks sits so interestingly in the tax arena - as ‘bricks-and-mortar’ a retail operation as it’s possible to get, yet accused of all the same shenanigans with royalties and intangibles and offshoring of intra-group services as the ‘digital economy’ guys – that I just couldn’t resist the company’s announcement last month about moving its European HQ to the UK, a move Starbucks claims “will mean we pay more tax in the UK”.

Why does it matter?