Avoidance: Time for campaigners to learn the law

Tax barrister Anne Fairpo has had enough of politicians and press getting tax law wrong, and unleashed the following diatribe in her 10 December podcast.

I am getting fed up with the continuing failure to understand either tax law or the relative issues on the part of the press and MPs on the Public Accounts Committee (PAC).

Avoidance is, according to HMRC, £4.5bn of the tax gap of £32bn. That is 14%. Yes it's quite a bit, but evasion - crime and the black economy - accounts for almost £15bn, or 46%. Simple non-payment accounts for £4bn; that's another 14% as well. 

These figures come from the HMRC's tax evasion report for 2011-12, it's not from some Pollyanna tax apologist.

The figures make it clear we'd be much better served if the PAC and the press made some attempt to go after those sectors, the ones that are actually evading tax and people who are flatly not paying stuff they know they owe, rather than going after soft touch high-street retailers, particularly one that had an effective global tax rate of over 32% the first nine months of 2012. 

This is Starbucks we're talking about. 

If it's avoiding tax as a group, it's doing so incredibly badly. In fact, it would be better off moving profit to the UK at those rates. 

LexisNexis tax manager Ben Saunders pointed out in his blog that if Starbucks were gaming the system, they'd be at break-even in the UK. Their current arrangement gives a tax charge in the Netherlands and Switzerland without a current matching tax reduction in the UK. They're sufficient loss-making that deductions for royalties and interset and so on and are conditional losses, not current reductions in tax. 

It's particularly irritating that these stories paid HMRC and UK tax laws so little favours. They seem to think they are completely toothless. But on Starbucks royalties alone, HMRC disputed the transfer pricing so that Starbucks now deducts or deducted 4.7% for tax purposes and not the 6% reported in the accounts.

Transfer pricing isn't just something companies do. It's an internationally agreed set of tax principles that are aimed at ensuring companies can't simply shift profits around as they choose. 

Other articles just completely ignored thin capitalisation rules suggesting that Starbucks is 100% financed by debt from the USA. Where does anyone get the idea from that paying interest from the UK to the USA is a tax saving scheme?

UK corporation tax rate is 24%. The US Fed rate is 35%, so paying tax from UK to USA is an increase in tax of 11%. This is not a tax saving. They would be better off as a group not paying interest to the US parent. But you can guarantee that the IRS would be deeply unhappy about that, to put it mildly.

If it's an arms-length rate, does it matter if the company pays interest to a bank or to its parent? It's still getting the same deduction for tax purposes. Those who are making the argument that subsidiaries shouldn't pay for the use of their parent company's intellectual property should aquaint themselves with the inflows to the UK of things like the royaltie and licence fees to UK businesses before they decide such payments are immoral. 

Or are they only immoral when the payment leaves the UK?

Finally, I'd love to be able to congratulate the BBC journalist who did eventually accept that plain vanilla loss relief is not controversial tax planning. But we'd have all been better served if the facts had been checked before the story went out.

I'm annoyed because we need a discussion on tax in this country. We've got a long tax code because we bolt on bits here and there. No one really stops to sit down and say what are we trying to achieve with the tax system?

Is it simply a money-raising thing, are we trying to manipulate behavior? If we're trying to do all that, how should we go about it? We need that discussion, but this isn't what we're getting.

What we are seeing in the press is not a discussion, it's a one-sided excoriation of non-UK businesses fuelled by misunderstanding and misrepresentation.In the meantime those who are actually breaking the law and evading tax are just laughing as a steamroller passes them by.

Anne Fairpo contributes a weekly tax podcast to AccountingWEB, sponsored by CCH. You can get free CPD by listening to her archived reports and completing short questionnaires on the topics covered.

Comments
afairpo's picture

[historic]    1 thanks

afairpo | | Permalink

Transcript errors mostly fixed. I still need to learn to enunciate better.

listerramjet's picture

excellent blog    2 thanks

listerramjet | | Permalink

I do hope you sent it to all the members of the PAC.

nigel's picture

Well put Anne    2 thanks

nigel | | Permalink

An excellent article. I suggest you send copies to the popular financial press too. Snag is, I fear they have been briefed by politicians who either don't know how the tax system works, or have their own alternative agenda!

and Panorama    1 thanks

The Black Knight | | Permalink

and Panorama?

Trouble is the twits believe themselves as do the audience.

I wish HMRC would do something about evasion.

Most of it is blatant, easily spotted and could be easily dealt with.

I would be surprised if it was only 15 billion a year too.

Why are we paying these elected clowns to get us into a mess that they still have no idea how they created and no idea how to get us out.

 

On the other hand ...    3 thanks

earlsfield | | Permalink

My understanding is that Starbucks pays a high rate of corporation tax in the US and seeks to compensate for this by moving profits where it can (e.g. from the UK) into the Netherlands to take advantage of a rate negotiated with the Dutch tax authorities that is very considerably lower.  Since Starbucks themselves have offered no defence along the lines of Anne's reasoning (and instead are offering voluntary tax payments of £10m a year), it is not far-fetched to infer that they are (at least in part) 'at it'.

There is also the inconvenient evidence about the company having told investors that their UK operation is profitable, when, despite having shops on every high street, they now appear to have lost money for fifteen years in a row!  (Remember that the cost paid to the producer of a shot of coffee is say 5p and this will be sold for £1.80 thousands and thousands of times a day in every branch.  In these circumstances, loss-making would be pretty hard to do.)

There's the financial accounts, the tax computation and the company's own public statements about its performance - when the mis-match between these is so great, it is reasonable for a citizen, or a parliamentary committee, to ask probing questions.

coolmanwithbeard's picture

well said

coolmanwithbeard | | Permalink

Well said - I'm fed up shouting at the TV along those lines

 

Ultimately using your personal allowances is tax avoidance if you take the current attutude in the press to its logical conclusion!!

 

M

Erm no, they are offering to    1 thanks

VIOLA26 | | Permalink

Erm no, they are offering to pay £10m a year for the next 2 years as a desperate attempt to deter an ill informed public from moving their business to Costa Coffee or Caffe Nero, it has nothing to do with offering a defence to their global tax structure and the UK tax position.  It is pure and simply a public relations exercise.

Anne's article is spot on but why let the truth get in the way of a good story.

deception & menaces

The Black Knight | | Permalink

VIOLA26 wrote:

Erm no, they are offering to pay £10m a year for the next 2 years as a desperate attempt to deter an ill informed public from moving their business to Costa Coffee or Caffe Nero, it has nothing to do with offering a defence to their global tax structure and the UK tax position.  It is pure and simply a public relations exercise.

Anne's article is spot on but why let the truth get in the way of a good story.

 

Sort of demanding money by menace and deception? The Law is dead?

Are you on the Board of

earlsfield | | Permalink

Are you on the Board of Starbucks?  If not, on what basis do you make assertions about why Starbucks, a loss-making business, is offering up £20m in corporation tax?

because

The Black Knight | | Permalink

Tax is not voluntary....and it has been reported in previous articles that this payment is voluntary and does not affect its transfer pricing. So in effect it will perhaps pay double taxation.

Had this been real tax it would have followed a confidential HMRC enquiry or tribunal and followed the correct process in law.....instead we have had a public Kangeroo court that clearly did not understand the issues.

Are you trying to say this is a deal to avoid penalties?

It is bewildering why they did not simply say HMRC had agreed the figures as most taxpayers would.......perhaps they will now get a proper enquiry on the basis that they rolled over to easily.

From a PR point of view surely it would have been better to prove that they had paid the right amount of tax?

Or perhaps we need another enquiry to see if there is any arm twisting going on or more government corruption.

What has their global tax rate got to do with it?    2 thanks

chatman | | Permalink

What has their global tax rate got to do with it? If they are paying no CT in the UK, despite being profitable, they should be taxed more heavily.

TAX EVASION

JOHN WEALLEANS | | Permalink

   Whlist Anne makes some very good points  and is to be admired for voicing her opinions

   I do believe that she has overlooked the facts that Starbucks and others do actually provide

    employment in the U.K. and pay over buckets in PAYE & NIC for which David Cameron ,

   George Osbourne & Co. should be gatrateful for..

 

   Sometimes it pays to think outside the "TAX BOX"

The benefits of "providing employment"    2 thanks

chatman | | Permalink

JOHN WEALLEANS wrote:
Starbucks and others do actually provide

    employment in the U.K.

They only compete with other vendors of pretentious coffees. Take them away and someone else will take up the slack, employing their workers to supply the stuff.  I don't think we really gain from their participation.

ShirleyM's picture

All employers pay PAYE & NIC, including their competitors    1 thanks

ShirleyM | | Permalink

But not all profitable companies pay CT,

I don't know what to believe! Are they profitable in the UK and making it look like losses, or are they making losses and deceiving their investors?

Trading unprofitably for years?    1 thanks

chatman | | Permalink

ShirleyM wrote:
Are they profitable in the UK and making it look like losses, or are they making losses and deceiving their investors?

I'm guessing the former. Otherwise, why would they carry on trading in the UK?

listerramjet's picture

almost but not quite

listerramjet | | Permalink

@alastairt.  How do you think its US tax is mitigated by what it does in Europe?  The Europe bit you describe is called the single market.  the rules are made in EU land and the UK is required to follow them.

I think you need to "wake up and smell the coffee"!

afairpo's picture

Interesting ...    2 thanks

afairpo | | Permalink

Interesting to see how the comments have come through.

Just to correct the course a little (perhaps), this far down the comment chain - my point was not whether Starbucks are right, wrong, upside down, or eating green eggs and ham. It's that most, if not all, of the commentary in the press and the debate in the PAC is founded on incorrect understandings and assumptions of current UK tax law. As a result, the discussion has focussed on drawing and quartering a company based on those inaccuracies (it's questionable whether Starbucks are doing anything more than generating apparently cack-handed PR - those tax writers who have actually looked at their accounts generally seem to agree that they don't seem to be doing anything particularly unusual).

Instead of apparently demanding that a few non-UK companies reorganise themselves to maximise UK tax (which seems to me to be the logical conclusion of most press/PAC commentary, and would seriously annoy the IRS and various other tax authorities) wouldn't it be more useful to be looking at whether our actual tax laws are actually fit for purpose? And also what that purpose is, or might be? 

As for why a company might carry on trading in the UK whilst making losses for years - maybe the reputational issues that would follow from pulling out of its second largest market? And possibly the hope that they can do better on lease negotiations in future, as that seems to be a large part of their losses problem.

Having had my morning Costa, I now feel fit to comment!

earlsfield | | Permalink

listerramjet wrote:

@alastairt.  How do you think its US tax is mitigated by what it does in Europe?  The Europe bit you describe is called the single market.  the rules are made in EU land and the UK is required to follow them.

I think you need to "wake up and smell the coffee"!

I did not mean to suggest that Starbucks' US tax rate is mitigated by what it does in Europe.  I meant to suggest that its global tax rate is so mitigated.  I used the word 'compensated' i.e. Starbucks doesn't like paying a lot of tax in US but can do nothing about this in the US; so it feels kind of justified in paying (arguably) less than it should elsewhere on the planet.

 

 

 

To Anne    1 thanks

earlsfield | | Permalink

afairpo wrote:

Interesting to see how the comments have come through.

Just to correct the course a little (perhaps), this far down the comment chain - my point was not whether Starbucks are right, wrong, upside down, or eating green eggs and ham. It's that most, if not all, of the commentary in the press and the debate in the PAC is founded on incorrect understandings and assumptions of current UK tax law. As a result, the discussion has focussed on drawing and quartering a company based on those inaccuracies (it's questionable whether Starbucks are doing anything more than generating apparently cack-handed PR - those tax writers who have actually looked at their accounts generally seem to agree that they don't seem to be doing anything particularly unusual).

Instead of apparently demanding that a few non-UK companies reorganise themselves to maximise UK tax (which seems to me to be the logical conclusion of most press/PAC commentary, and would seriously annoy the IRS and various other tax authorities) wouldn't it be more useful to be looking at whether our actual tax laws are actually fit for purpose? And also what that purpose is, or might be? 

As for why a company might carry on trading in the UK whilst making losses for years - maybe the reputational issues that would follow from pulling out of its second largest market? And possibly the hope that they can do better on lease negotiations in future, as that seems to be a large part of their losses problem.

I would like to pick Anne up on three of her points:

  1. Starbucks appear to have over-egged (green or otherwise) their transfer pricing pudding for several years, running at 6% instead of 4.5% - and by so doing may have deprived the UK Exchequer of tens of millions of pounds.
  2. It is not credible that Starbucks would approve a payment of £20m of tax on profits if those profits are non-existent (in an economic sense), when the alternative is a (say) £2m payment to a worldclass PR agency.
  3. The lack of detailed knowledge of tax rules and practice on the part of journalists and activists is a surprisingly good thing because I think that it is bound to lead to what Anne wishes for, namely " looking at whether our actual tax laws are actually fit for purpose ".

What the general public have discovered is the following (broad numbers):

Costa makes £75m economic profit in the UK and pays £15m corporation tax in the UK.

Starbucks makes £75m economic profit in the UK and pays nil corporation tax in the UK.

On making this discovery, the public is deserting Starbucks and migrating to Costa (and others).  Similarly, John Lewis had a good Xmas - perhaps in part because of a desertion from Amazon.

Anne may bemoan the fact that the commentators are not well-informed, but I don't. Tax affects everybody, and you are allowed to join the debate whether you know anything about it or not.

 

 

 

 

Economic profit?

The Black Knight | | Permalink

alastairt wrote:

[

Costa makes £75m economic profit in the UK and pays £15m corporation tax in the UK.

Starbucks makes £75m economic profit in the UK and pays nil corporation tax in the UK.

On making this discovery, the public is deserting Starbucks and migrating to Costa (and others).  Similarly, John Lewis had a good Xmas - perhaps in part because of a desertion from Amazon.

Anne may bemoan the fact that the commentators are not well-informed, but I don't. Tax affects everybody, and you are allowed to join the debate whether you know anything about it or not.

 

Can I ask what you mean by economic profit? Is this different to accounting profit? or taxable profit?

Why is Costa only paying 20% corporation tax?

 

Economic profit

earlsfield | | Permalink

The Black Knight wrote:

alastairt wrote:

[

Costa makes £75m economic profit in the UK and pays £15m corporation tax in the UK.

Starbucks makes £75m economic profit in the UK and pays nil corporation tax in the UK.

On making this discovery, the public is deserting Starbucks and migrating to Costa (and others).  Similarly, John Lewis had a good Xmas - perhaps in part because of a desertion from Amazon.

Anne may bemoan the fact that the commentators are not well-informed, but I don't. Tax affects everybody, and you are allowed to join the debate whether you know anything about it or not.

 

Can I ask what you mean by economic profit? Is this different to accounting profit? or taxable profit?

Why is Costa only paying 20% corporation tax?

 

It is indeed different than accounting profit (and even more different than taxable profit or loss) and it is the reason that Starbucks is so keen to placate the general public by making £20m 'voluntary' tax payments.  The difference between Costa and Starbucks is that Starbucks pays its economic profit to a group member in return for IP rights (picture of a mermaid on a large canteen mug etc) - i.e. offshores its economic profit - and obtains a corporation tax deduction for doing so.  Costa does not do this because its IP rights are in the UK.

 

The 20% rate question - just ignore, it's broad numbers for illustrative purposes.

 

 

Economic profit?

The Black Knight | | Permalink

alastairt wrote:

It is indeed different than accounting profit (and even more different than taxable profit or loss) and it is the reason that Starbucks is so keen to placate the general public by making £20m 'voluntary' tax payments.  The difference between Costa and Starbucks is that Starbucks pays its economic profit to a group member in return for IP rights (picture of a mermaid on a large canteen mug etc) - i.e. offshores its economic profit - and obtains a corporation tax deduction for doing so.  Costa does not do this because its IP rights are in the UK.

 

The 20% rate question - just ignore, it's broad numbers for illustrative purposes.

Not sure as I understand the term economic profit? Are you saying this is accounting profit excluding all goods and services that arise outside the UK or are you trying to eliminate inter group trading before a consolidation?

Where should the payment for IP rights be taxed? Why not the same place it was created like Costa?

Clearly there is a significant value in the trade mark otherwise it would just be a coffee shop.

Is the coffee disallowable too? As this did not originate in the UK either?

Perhaps a duty should be levied on coffee to reduce the cost to the NHS due to kidney stones much like cigarettes?

Why not the same place it was created like Costa?    2 thanks

earlsfield | | Permalink

[/quote]

Not sure as I understand the term economic profit? Are you saying this is accounting profit excluding all goods and services that arise outside the UK or are you trying to eliminate inter group trading before a consolidation?

Where should the payment for IP rights be taxed? Why not the same place it was created like Costa?

Clearly there is a significant value in the trade mark otherwise it would just be a coffee shop.

Is the coffee disallowable too? As this did not originate in the UK either?

Perhaps a duty should be levied on coffee to reduce the cost to the NHS due to kidney stones much like cigarettes?

[/quote]

 

To the best of my knowledge, Starbucks' IP rights were created in Seattle, USA.  The whole point of the debate is that Starbucks have transferred these rights from a high tax jurisdiction (the USA - where the rights were created) to a low tax jurisdiction, or a series of low tax jurisdictions.  You can't do this with bricks and mortar, but you can do it with intangible assets like IP rights.  And if you wish to do it, you will not find a better IP tax lawyer in the UK than Anne Fairpo.

If you are happy that businesses manipulate their profits away from the country in which they operate into offshore locations to save tax, then no problem.  Subject to reasonable application of transfer pricing rules, this is entirely legal.

But, as Starbucks have discovered, legality counts for nothing if the ordinary punter takes their business elsewhere in disapproval.

 

 

Fair play?

The Black Knight | | Permalink

You can only play by the rules.

My points would be:

1, HMRC have clearly agreed Starbucks transfer pricing tax position. Why haven't heads rolled if they did not do their job properly?

2, I do not agree with artificially moving profits from one jurisdiction to another purely for a tax advantage, but this is presumably covered by the Ramsay Principle? Establishing a shed in Luxembourg, the Caymans or elsewhere is clearly not in the spirit of the law.

3, The British public pay their money and take their choice. They have not questioned the other non tax 80% that goes offshore. Just the payment of their benefits cheque.

4, Tax evasion is a much bigger issue and illegal, yet attention and resources are being diverted from this serious and UK economy saving issue.

5, The Public are being deliberately misinformed. "Bread and circuses" Cicero

6, We have a great legal system. (with faults I grant) We do not need to resort to public riots.

"if you listen to fools the Mob rules" Ozzy

and would add

The Black Knight | | Permalink

And would add.

If MP's do not understand the legislation they are writing then they should go NO where near it.

I think we need better educated and more intelligent MP's who have some business/ life experience other than Bullshitting

onthespottax's picture

Transfer Pricing - A One Way Street?

onthespottax | | Permalink

Politicians have done several things to encourage more profits to be taxed in the UK. The continuing reduction in the main rate of corporation tax being the most obvious. 

The big money for the politicians is to mention to potential global investing companies that the UK corporation tax rate is far lower than France's 33% for example. The UK benefits from making this known, and if you trade in France and the UK, you will be ensuring all the marketing services, for example, done in the UK are fully paid for by the French company and therefore taxed at the lower UK rate. 

At the same time a lower corporation tax rate makes it less attractive for global companies to set up complicated international structures where profits are taxed in different countries for providing these different added values along the supply chain.

As we are in competition with other countries, we need to be 'tax-competitive'. In a global world in which we wish to take part, it's difficult to see how we can ever eradicate this global tax competition.

A practical outcome might be to require an expansion of the accounts tax disclosure note so we can see more clearly where material international payments are being made as HMRC can never provide us with the details we require. With transparency comes the ability to make more meaningful comparisons and ask meaningful questions of our politicians.

 

 

 

afairpo's picture

So how do we deal with multinationals, then?

afairpo | | Permalink

alastairt wrote:

The difference between Costa and Starbucks is that Starbucks pays its economic profit to a group member in return for IP rights (picture of a mermaid on a large canteen mug etc) - i.e. offshores its economic profit - and obtains a corporation tax deduction for doing so.  Costa does not do this because its IP rights are in the UK.

A chunk of the profits of any brand-centric company relate to the IP rights that make up the brand. The brand means that more people come in and buy, or that a higher price can be charged (or both), compared with an equivalent business with no brand (well, that's an abbreviated explanation anyway). That increase in turnover gives value to the IP rights and, in general, that value will be taxed where the owner of the IP rights is based for tax purposes - subject to withholding taxes. A UK subsidiary of a UK group can get the same tax deduction where the IP is owned by another group company. The difference is where the payments for the use of the IP get taxed - and that's a function of international tax rules. A non-UK based multinational is almost always going to have its IP rights outside the UK because they are created outside the UK in the first place. A UK subsidiary of a multinational is not offshoring profit, it's making a payment for the use of an asset that it doesn't own and has never owned. If it were a franchisee of a third party, it would be making the same payment (assuming transfer pricing rules are working the way that they are supposed to).  

A multinational group isn't obliged to move all or part of those assets to the UK. A UK subsidiary of a US headquartered company will be paying the US and getting a corporate tax deduction in the same way for the brand if the non-US rights are't transferred from the US company. The IRS aren't shy about demanding that companies receive transfer pricing payments for their IP and certainly wouldn't accept a company just giving away valuable IP developed in the US. 

So, how should we deal with non-UK based multinationals who operate in the UK? We can't force them to transfer IP assets to the UK - and, if we did, the jurisdiction they were transferred from would likely demand compensation for the loss of a valuable asset. That compensation would, presumably, have to be tax deductible in the UK - it would certainly be a cost of doing business. 

What alternatives are there, or on what alternative base should companies be taxed to remove the effects of national borders and geographic ownership of assets?

And then, how do we deal with online services companies that need no physical presence in the UK at all? And so on …

Nothing?

The Black Knight | | Permalink

afairpo wrote:

So, how should we deal with non-UK based multinationals who operate in the UK? We can't force them to transfer IP assets to the UK - and, if we did, the jurisdiction they were transferred from would likely demand compensation for the loss of a valuable asset. That compensation would, presumably, have to be tax deductible in the UK - it would certainly be a cost of doing business. 

What alternatives are there, or on what alternative base should companies be taxed to remove the effects of national borders and geographic ownership of assets?

And then, how do we deal with online services companies that need no physical presence in the UK at all? And so on …

Do we actually need to do anything with the rules?

Apart from follow them and enforce them.

If Starbucks have a problem then it was agreed with HMRC was it not?

The British Public need to take responsibility for their own actions. They after all have a choice where they shop. Ignoring the last bit of the cake (tax) buying foreign does not benefit the UK economy.

Shopping in large supermarkets (that have artificially tax credits supported salaries and no employers NIC to boot)  does not benefit small business or the tax take.

The end result is they have voted with their £1 for the economic muddle, the welfare lifestyle and crippling debt.

It is HMRC that is not fit for purpose not the rules.

High tax rates and high employment costs have driven our manufacturing abroad when we should have looked after it.

We should also have looked after our Island of small shop keepers

These are conscious decisions the British Public and Government have made to destroy their own economy? Unless you believe in divine stupidity.

 

MADE IN THE U.K.    1 thanks

JOHN WEALLEANS | | Permalink

 Let's divert our energies to supporting the likes of Mary Porterhouse and have U.K. made frilly knickers !!

I do notic that even Marks & Spencer have mens Slippers and underwear made in CHINA.

Where is the loyalty to BRITISH MADE - in divine stupidity  have we outpriced ourselves ?

The treasury would be on target ,if not above, if we had more BRITISH MADE and BRITISH JOBS with all the PAYE/NIC and C.T. receipts.

Why doesn't George Osbourne give some more  incentive to british Industry with all the ancillary services that would create. ?

So, a stronger HMRC ,doing the job properly, with added U.K. Industrial growth - so why mention Starbucks. !! 

More P.E than I.P. - but a question for Anne

Chaztax | | Permalink

Hi Anne

I feel that there is (at least!) one significant flaw in the international tax law structure. I’m referring to the rules which allow online retailers to sell into a country whilst (provided that they don’t have a taxable presence there) falling outside the scope of corporation tax in that country, i.e. on the basis that they are trading “with” the country rather than trading “in” it.

Technology seems to be giving online retailers more flexibility over where they can establish their taxable base and (leaving aside for now the specific country CT rates in the US, UK, etc) it is possible for online retailers to be selling from a low tax country into a high tax country, which to my mind gives them an unfair competitive advantage over the local retailers, who are still subject to the higher local CT rates.

I am (as I’m sure you can guess) thinking of one of the other three companies which was interviewed at the PAC hearing; but it seems better  to keep the discussion general rather than delve into the detailed facts surrounding specific companies where we don’t necessarily have complete information.

I can’t help thinking that (in light of advancing technology) the very concept of “permanent establishment” as a basis for taxing overseas companies is starting to look a bit outdated.

I’d appreciate any comments you might have on the above.

listerramjet's picture

feelings?

listerramjet | | Permalink

alastairt wrote:

listerramjet wrote:

@alastairt.  How do you think its US tax is mitigated by what it does in Europe?  The Europe bit you describe is called the single market.  the rules are made in EU land and the UK is required to follow them.

I think you need to "wake up and smell the coffee"!

I did not mean to suggest that Starbucks' US tax rate is mitigated by what it does in Europe.  I meant to suggest that its global tax rate is so mitigated.  I used the word 'compensated' i.e. Starbucks doesn't like paying a lot of tax in US but can do nothing about this in the US; so it feels kind of justified in paying (arguably) less than it should elsewhere on the planet.

 

 

 

I wonder how you can attribute so much "feelings" to a legal entity called Starbucks?  We don't know the minds of the directors, but in my experience most boards view tax as something to comply with - one of many political risks to manage.  I just don't recognise those feelings you ascribe to Starbucks.

Feels like teen spirit

earlsfield | | Permalink

listerramjet wrote:

alastairt wrote:

 

I did not mean to suggest that Starbucks' US tax rate is mitigated by what it does in Europe.  I meant to suggest that its global tax rate is so mitigated.  I used the word 'compensated' i.e. Starbucks doesn't like paying a lot of tax in US but can do nothing about this in the US; so it feels kind of justified in paying (arguably) less than it should elsewhere on the planet.

 

I wonder how you can attribute so much "feelings" to a legal entity called Starbucks?  We don't know the minds of the directors, but in my experience most boards view tax as something to comply with - one of many political risks to manage.  I just don't recognise those feelings you ascribe to Starbucks.

 

You are being overly literalist; "feels kind of" is an obvious colloquialism.  Of course, I do not believe that limited companies have feelings.

Offshoring profit    1 thanks

earlsfield | | Permalink

[/quote]

A non-UK based multinational is almost always going to have its IP rights outside the UK because they are created outside the UK in the first place. A UK subsidiary of a multinational is not offshoring profit, it's making a payment for the use of an asset that it doesn't own and has never owned.

[/quote]

Anne suggests that the reason that the IP rights of non-UK based multinationals are generally outside the UK is "because they are created outside the UK in the first place".  This is not the reason at all, because where IP rights are created is irrelevant.  What matters, as Anne elsewhere tells us, is where the owner of the rights is based for tax reasons.  For many multinationals - Apple, Facebook, Google, Microsoft to name a few - this is likely to be the Cayman Islands or Bermuda.

Everyone knows that Apple's IP was created in Palo Alto, California, USA.  But somehow Apples's non-US IP rights have become owned by an Irish company tax resident in the Caymans.  And since it is currently lunchtime, let's mention the Dutch sandwich.  Check it all out on Wikipedia.

If what these companies are doing is not offshoring profit, then I'm Father Christmas.

 

 

What's wrong with Starbucks?

earlsfield | | Permalink

What's wrong with Starbucks?

I don't like Starbucks.

I don't like the coffee, I don't like the green eggs and ham paninis, I don't like the prices, I hate the mugs, and I don't like the way they refuse to accept your debit card in their hand but instead point you to the machine and make you insert it yourself, as if you were threatening them with a contagion, and I don't like the fact that they open up branches almost adjacent to each other, especially in train stations (and still claim to be loss-making).  I recently arranged to meet a prospective client in Starbucks in Wardour Street, and he didn't show up.  Or rather, I didn't show up - because he and I were in different branches of Starbucks in Wardour Street.  Oh, and I don't like their tax arrangements.

 

Yes but

The Black Knight | | Permalink

alastairt wrote:

 

If what these companies are doing is not offshoring profit, then I'm Father Christmas.

 

 

Yes but it was never ours (UK plc) in the first place so are we expensing an enquiry to discover that the US has been avoided for tax reasons???

Never ours in the first place?    1 thanks

earlsfield | | Permalink

The Black Knight wrote:

alastairt wrote:

 

If what these companies are doing is not offshoring profit, then I'm Father Christmas.

 

 

Yes but it was never ours (UK plc) in the first place so are we expensing an enquiry to discover that the US has been avoided for tax reasons???

 

I have great difficulty in accepting that Starbucks UK is loss-making.  Anne has made two suggestions on this: 1.  It is loss-making but to stop trading and therefore end the losses would damage their global reputation (because the UK is Starbucks' second largest market in the world, albeit a loss-making market) and 2.  Rents are too high.

My view is that the IP is too high.  People are more likely to go to a coffee shop because of its location (which may be in the workplace) than because of its brand.  Unless you are a connoisseur, one company's coffee tastes much like another's.  Starbucks themselves believe in the importance of location, which is why they open shops absolutely everywhere.  They would need far fewer shops if the IP were worth anything like they claim it to be.  And fewer shops would mean smaller losses.

It's the old story: location, location, location.  The IP is baloney.

The clue is in the £20m voluntary payment of tax on profits.

 

 

"Yes"

earlsfield | | Permalink

The Black Knight wrote:

alastairt wrote:

 

If what these companies are doing is not offshoring profit, then I'm Father Christmas.

 

 

Yes but it was never ours (UK plc) in the first place so are we expensing an enquiry to discover that the US has been avoided for tax reasons???

 

So, Black Knight - we are in agreement that mutinational companies including Starbucks are offshoring their profits.  The only question is whether it is US or UK taxpayers who are having to shoulder the cost of this.

Good, we now have a sound basis to start a national debate on corporate tax avoidance.

 

Comes back to

The Black Knight | | Permalink

Still comes back to the transfer pricing arrangements that seem to have been agreed by HMRC. Are we to believe that:

1) they (HMRC AKA the government) agreed something they not did agree. How can the IP rights be overvalued when HMRC did the figures? (they altered them according to above)

2) a voluntary payment will stick to a non liability and will not be returned immediately (this trick has been done before remember with MP's Dual private residence relief)

3) the US and UK and other owners of tax havens cannot bring a little pressure to collect the tax or send a bill for military and legal services?

4) these transactions cannot be challenged by the Ramsey principle? What is the main reason you have a shed in the Cayman Islands? Because it saves on heating bills? yeah right.

All of this is a non argument fueled by misinformation and hyped up by the press for political reasons to disguise the real problem which is that of Tax Evasion.

HMRC basically needs to pull its finger out and do its job.

And it IS about time those campaigners and reporters understood some basics about what they are bleeting about. At the moment it's a case of my cup might not be overflowing anymore who can I place the blame on?

 

1.  I am a management    1 thanks

earlsfield | | Permalink

1.  I am a management accountant.  Anne Fairpo is a tax barrister.  She and I are bound to look at things differently.  What's your line of work, Black Knight?

2.  Since the US and UK governments tolerate tax havens for multinational companies and wealthy individuals, my view is that our society is morally compromised when it condemns tax evaders.  Anne says, "Leave Starbucks alone and go after tax evaders!"  Has it not crossed her mind that there may be a causal relationship between the conduct of Starbucks and the conduct of those who underdeclare their income?

3. Apple Inc is reputed to pay 2% corporation tax on its non-US profits, thanks to its convoluted structures in low or zero tax jurisdictions.  It is the, or one of the, richest companies in the world.  So far as I can tell, the UK tax community regards Apple's tax arrangements as an object of the greatest admiration.

Anyway, it's been fun.  Best wishes for 2013 to all!

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