...Mr. Cameron said companies must "wake up and smell the coffee" over tax avoidance... [Starbucks] has been criticized for not paying enough corporation tax in the U.K. Reports said Starbucks could suspend 100 million pounds ($158 million) investment earmarked for new branches in the U.K. due to the perceived slight...This relates to a quandary that we've been discussing in class: mobile capital and the incapacity of states to capture it in a global economy.
The puzzle: Starbucks is a US-based multinational corporation that does a lot of business in the UK (and everywhere people are willing to pay $5 for coffee with milk). The UK would like to tax Starbucks' earnings (as most states do with most businesses). Starbucks, if it chooses to do so, can simply move its capital out of UK if it doesn't like the deal that Britain offers the multinational.
So, what is a state to do? How should the UK respond to Starbucks' threat to cease new investment if they are forced to pay higher taxes? Read the article and share your well-reasoned thoughts in the comments for participation points.
It’s clear that the United Kingdom needs to recognize G8 nations and their previous involvement in tax avoidance and tax evasion. The Starbucks corporation based in the United States is not the only threat to the UK because any international business involved within the UK can take taxation of revenue made within the nation and move it anywhere with a lesser tax rate. The UK has to be conscious of how other nations and their tax strategies affect their budget deficit. Although Starbucks provides the UK with 300 million pounds in income and they have already pledged 20 million pounds in corporate tax, over the next two years, the UK must recognize that out of 3 billion pounds of profit Starbucks has paid under 9 million in corporate tax. The UK has to determine whether reception of the 100 pound contribution would be greater than or equal to the ratio of how much the contribution would affect the budget deficit as shown by the past precedent of tax evasion in the 9 million to 3 billion ratio.
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