This is not taxation but payment of protection money

Of course any serious discussion of taxation should start with the obvious question: what is the tax money for? What should the state be doing that no other entity can do as well or, at least, as usefully? For the time being, let us leave that to one side and concentrate on how taxes are decided on and raised.

One does not have to be an adherent of the flat tax in order to agree that taxes should be proportional, fair, consistent and comprehensible. In other words, politicians should not, out of the blue, demand a new tax from one or more firms contrary to the rules they themselves laid down. That is not taxation but payment of protection money and that is exactly what is happening in this country.

After a great many attacks on large international companies who dared to do exactly what the tax legislation encouraged them to do and arrange their fiscal affairs in order to pay corporation tax in countries where the regime was more favourable, thus paying out more money to the shareholders, two things happened.

One was that our benighted Chancellor of the Exchequer or his minions realized that the best way of bringing those companies back into this tax jurisdiction is by changing it into a more favourable one. So, in April 2014 the rate of corporation tax will go down to 21 per cent, which is too little and too late but, at least a sign of some understanding somewhere in the Treasury.

More immediately, however, pressure has been put on the big companies to cough up or else. Dutifully, Starbucks has offered to do so. Ignoring their fiduciary duty to their shareholders they have looked around for a way of keeping the Treasury and the politicians, whose own idea of fiscal honesty is not exactly beyond reproach, and came up with an offer of £20 million over the next two years, which should keep a couple of those new Police Commissioners and their ever growing staff of highly paid buddies in business.

Starbucks said it will no longer claim tax deductions for the royalties it pays, the coffee it purchases, for interest paid on intercompany loans, or for capital allowances and losses carried forwards.

When those costs – which it is legally entitled to claim as deductions – are removed, it believes it would owe £10m per year. And if it is still not profitable in 2015 and beyond, it may make this donation again.

Quite so. They are making a donation. This is not a tax, this is protection money: go away, please go away, we'll give you some money.

But lawyers warned the deal, however nobly intended, does not represent a reasonable way to pay taxes. “Starbucks is operating within the law, and has not done anything wrong. There is no legal or scientific logic to this move,” said Richard Jordan from law firm Thomas Eggar. “It is a PR response, giving the people what they want to hear.”

Meanwhile, the European Commission is looking at ways

to reduce tax avoidance, seeking a common policy on the treatment of tax havens and coordination on “tackling aggressive tax planning”.

Well, I hope that will apply to all those pensions paid out to former Commissioners and their employees. (I do see pigs flying, I really do.) In the meantime, we'll send the bully boys round and businesses will pay up or they will be harassed by politicians and the media. Just the sort of country one wants to live in.