Demand for global tax reform grows after Starbucks row

The announcement, last week, by Starbucks, over payment of £20 million in corporation tax in the next two years, has given a boost to grassroots campaigners even as they savour their moment of power.

The US-based corporation, which has faced criticism for driving hundreds of independent cafes out of business, in its discretion thought it would be worthwhile to pay up £20 million than to face a consumer boycott or be viewed as a corporate baddie. However, apart from highlighting how even multinationals may be sensitive to being questioned about ethics, the move served to underline the arbitrariness of the international tax code.

Professor Sol Picciotto of Lancaster University calls for ditching the long-established "arm's-length principle" under which multinationals are allowed to treat subsidiaries in different companies as distinct firms, and pay tax accordingly.

"The present system treats transnational corporations (TNCs) as if they were loose collections of separate entities," he says in a new paper. "There is currently only weak co-ordination between tax authorities, and this 'separate entity' approach gives TNCs tremendous scope to shift profits around the globe."

The system was devised in the 1930s, when it was much simpler to track business activites that firms were conducting and where. Today with supply chains stretching across the globe, and company accounts including intangibles such as goodwill and intellectual property, the apportioning of economic activities and profits across different jurisdictions has become far more complex.

Meanwhile the row over the amount of tax multinationals are paying took another turn with the revelation that Microsoft paid no UK tax on its £1.7 billion of online revenues.