Procurement strategies to aid tax minimisation – sensible or a corrosive practice?

We’re seeing increasing noise about major multi-national firms avoiding the payment of tax in certain countries, including the UK and the US, through the way they structure their activities. All perfectly legal of course and we wouldn’t dream of suggesting anything else.

After recent criticism of Facebook, Apple and Google, the weekend saw more revelations about eBay and IKEA, but it was the case of  Starbucks that caught my eye, because of this comment on the BBC wesbite with a procurement angle.

For instance, Starbucks' UK unit and other overseas operations have to pay a royalty fee to other parts of the business for the use of its intellectual property such as its brand and business processes. The company also has to allocate some funds generated in the UK to other subsidiaries in its supply chain. Starbucks buys coffee beans for the UK through a Switzerland-based subsidiary and the beans are then roasted at another based in Amsterdam.

There’s a real dilemma here. With a professional procurement hat on, there are a whole range of opportunities and ideas that procurement leaders in large companies need to understand. Working with finance and legal colleagues, supply chain and procurement activities can potentially be structured in a manner that reduces tax and increases shareholder value.

We saw this some years ago when Vodafone moved their procurement centre from the UK to Luxembourg – that certainly wasn’t because of the huge pool of available, low cost talented category managers in that part of the world! (And there are rumours that the location is now proving problematic in terms of attracting people into the function). Rather, channelling profits into Luxembourg had tax advantages, and procurement was a convenient vehicle to achieve this.

Another interesting case is Barclays, who moved much of their procurement function to Singapore recently. That’s a case we don’t fully understand and haven’t explored. I’m still not clear whether this is tax driven, or an attempt to move the centre of gravity of the firm Eastwards, with procurement a willing or unwilling volunteer to be part of that.

Anyway, these manoeuvres may be legal, but they are having a corrosive effect on society in my personal opinion. As the taxpayer in the street, whether an individual or a small business, sees this happening, I’m sure it makes them feel less inclined to be honest in their tax dealings.

"If Starbucks, Facebook and Apple don’t pay what I might perceive as a fair share towards the cost of running the UK, why should I”?

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Nevertheless. as long as these strategies are legal, you can’t blame companies from following them. So really, we need to see if the government is willing to take on the large multinationals - or risk a situation where collecting tax from a more and more disaffected tax-paying community becomes more and more difficult.

And look out for more on this subject from Spend Matters Luxembourg / Cayman Isles shortly!

 

Voices (3)

  1. Paul Wright:

    Just a thought. Do these companies have CSR policies? If so, isn’t paying taxes part of them? If not, why not?

  2. Dan:

    Playing devil’s advocate here. A Company is responsible to its shareholders, not society at large. If it doesn’t take efforts to reduce its tax liability, is it therefore breaching its duty to shareholders?

    I think this shows the lack of joined up thinking in government. It says that public procurers should make things easier for SMEs as they are central to the growth strategy, and at the same time allowing their larger competitors to avoid taxes, and thus making it harder for them to compete.

    1. Colin Boyle:

      The Companies Act 2006 states that a director needs to take account of (amongst other things) the impact of the decision on the community and environment and the desirability of maintaining a reputation for high standards of business conduct. Both of these factors could well be viewed as being adversely affected by tax minimisation policies. The problem is that there are few easy ways to actually enforce these particluar aspects on directors who ignore them.

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