Starbucks has announced (according to Sky):
Starbucks has confirmed it is now planning to pay more corporation tax than it is obliged to amid the row over contributions from big foreign multi-national firms.
The company's UK Managing Director Kris Engskov said: "Having listened to customers and to the British public, Starbucks in the UK will be making changes which will result in the company paying higher corporation tax in the UK - above what is currently required by law.
"Specifically, in 2013 and 2014 Starbucks will not claim tax deductions for royalties or payments related to our intercompany charges."
Forget it guys. That solves nothing. No one asked you for voluntary box donations. We asked you to pay the right amount of tax in the right place at the right time.
The reason why Starbucks has not been paying the right amount of tax in the right place at the right time is that it has pout in place legal and accounting structures that have meant that the way it has been able to record its profits do not match with the underlying economic reality of the way it must make its money. So, royalties were being paid to reflect the supposed costs of creating new products and associated "intellectual property". But no one, anywhere, thinks it costs 6% of turnover to know how to put water on coffee, mix a milkshake with a silly name or sell a chocolate brownie. So it was the structure that was wrong.
The same with the coffee beans: what was wrong was attributing the profit to the traders in Switzerland. It was the end customer who created the profit on those beans, not the dealer in Switzerland.
Since I was involved in the original Starbucks story (although Tom Bergin of Reuters is the complete star of this issue) I can tell you working out what was happening in this company was hard: they did all they could to obscure the realities of the economic substance of what was happening. Their accounts are as clear as mud: there aren't any for Switzerland for a start. They're just not available. So a lot of fevered effort went into fathoming out what is now known.
Now what Starbucks is saying is that it will leave these structures that permitted in place but not claim the costs for a couple of years. And that's a total fail. We do not want voluntary box donations thank you very much. we want real change.
What's the real change we want? Try these:
1) Full country-by-country reporting that will tell us for each and every country where Starbucks works what is made, what costs are, how much is paid to staff, what the profit is, what taxes are paid and critically how much of all of this is down to intra-group rather than genuine customer trading.
2) A blow by blow explanation of tax actually due and paid: not accounting numbers but real numbers too.
3) A commitment to make tax payments where profits are really earned - which is where the end customers are, where people are employed and where the real assets (stores mainly in their case) are.
That's what we want. You can keep you £10 million. Invest it in transparency. That's what i say. And if you don't know how to do it, call me in. I'll show you.
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Absolutely- do you think the Day of Action by UK Uncut this Saturday had any influence on their very generous offer??
Yes
On the coffee beans isn’t it as simple as they have paid an arms length price for the goods they have purchased (so there’s no tax advantage because it is the same price as they would have paid an independent person and this is easy to establish as there is a deep and open market in coffee beans).
Prove it
That’s the issue
Easy to prove – HMRC has agreed the position. If it was an excessive price HMRC has full powers to adjust.
It has
It’s been reduced recently
An alternative and fair reading is that Starbucks have suffered extortion at the hands of the rabble. Starbucks have followed the UK’s transfer pricing rules to the letter, so using your definition how exactly have they got around the intention of Parliament? They clearly acted both within the letter and the spirit of the law.
They set up structures to achieve the aim of shifting profits
They did shift profits
They’re tax avoiders
But you have to show that they shifted profits contrary to the intention of Parliament to conclude on tax avoidance as that’s your definition (not mine). Otherwise it’s no different to paying into a pension.
No, they set up the structures to let transfer pricing happen in the fiorst place
That was the avoidance
Mr Murphy, you may not be aware but Switzerland is the world centre for coffee trading. Most of the world’s coffee passes through this centre. As a result Starbucks would have set up here irrespective of tax. Therefore I am not sure your structuring point is right. I work for Nestlé so know this and hope you find it helpful.
I do know that
But a 20% mark up is not a necessary part of the deal
That’s the point
Sorry Mr Murphy. I thought you were saying the structuring was the issue not the transfer pricing from the above so I hoped to help. Tax is your area. Most thanks.
Respectfully go back to Nestlé
Not a lot of conscience there, as many of us have known for a very long time
Oh, and give up the patronising: it’s not becoming
Starbucks must have realised that the ‘rabble’ had a case though, otherwise they would not have taken the steps they just have to try and suppress the situation. The customer is always right in retail; isn’t that so?
Do all working taxpayers count as rabble? If so I am proud to declare myself to be part of the rabble. Presumably Trevor you believe that us plebs (I think that is the official term now) should know our place and not venture to ctiticise our betters?
What a snob remark.
“But no one, anywhere, thinks it costs 6% of turnover to know how to put water on coffee, mix a milkshake with a silly name or sell a chocolate brownie. So it was the structure that was wrong.”
This made me think of McDonalds. Do we know how much they charge to run one of their franchises? It might be useful to know so that the whole thing can be put into context. What is the typical charge that a franchise levies?
After posting this question I started to dig around and found the following royalty fees were charged:
Subway: 8%
Pizza Hut: 6%
KFC: 5%
It makes it look like 6% is middle of the road for a big name franchise, but it also makes you wonder whether any of these companies are paying tax on their royalty fees either.
Everyone being wrong does not make a right
[…] Note to Starbucks: we don’t want token gestures. We want the right tax in the right place at the r… […]
Have you ever come across this ironically titled blog?
http://thepatentlyblog.blogspot.co.uk/2012/12/an-interesting-conversation.html
This is my response to the person who posted on my fb page:
“Firstly, the law does not say that Starbucks can get around the law to avoid paying the amount of tax that the law and parliament intended them to pay on profits made in the UK (which ranges from 20% for small profits up to 25%). In the majority of cases when HMRC get the resource to challenge tax avoidance schemes in the courts the law finds in their favour and loopholes are closed. For instance a couple of loopholes employed by Barclays have been closed down recently. http://www.guardian.co.uk/business/2012/sep/06/barclays-tax-avoidance-george-osborne. There are no statutory rules that say Starbucks should be paying zero corporation tax on profits garnered in the UK; the legality of using transfer pricing to disguise the profits made in the UK is untested. Whilst it is true that many large internet companies and coffee chains are foreign owned, many are not – Costa Coffee is UK based and pays full UK corporation tax. Virgin Media started out from the Virgin group of companies which originated in the UK. The UK has success stories in many other fields such as engineering firm Dyson, which as far as we know pays full corporation tax. Many might say that the only way a company such as Google has got the stage they are within 14 years is because they have given themselves an unfair advantage by avoiding tax, money which they then use to expand the business at the expense of others who feel a moral obligation to pay the going rate of corporation tax or who do not have the resources to employ tax advice that would facilitate tax avoidance. To say the UK is anti-entrepreneurial is factually incorrect. For instance London’s technology sector has the highest number of women entrepreneurs in Europe, including Christine Walker, founder of media planning and buying company Walker Media, who I used to work for in London (now part of M&C Saatchi) http://www.internationalentrepreneurship.com/europe/united-kingdom/. It’s a well named blog though Danny, because he is patently talking rubbish with no facts to back him up.”
The advantage multinationals have over smaller local business is economies of scale, for example having 1 management team to run 10 countries.
The country that the management team is based in needs to be fairly rewarded (OECD Guidelines / Transfer Pricing ensure this is done). It’s immoral to suggest Starbucks should pay more tax in the UK over Switzerland where management is based or Netherlands where high value assets are held.
These people Margret Hodge, PAC, UK Uncut are bullies, they are damaging the reputation of the UK internationally and will push jobs away from the UK.
You are living a fantasy at so many levels from the OECD TP rules ensuring anything is done that your commen is quit ludicrous
Dave – you’re another snob.
What about freedom of speech? It’s never immoral to suggest anything.
I am sure that the reputation of the UK will suffer if British peopole are not prepared to be treated like serfs. Yes, these ordinary peolpe bullying the large mulinational companies. I think you have got it the wrong way round.
The standard of right wing commentary is not what it used to be.
“But no one, anywhere, thinks it costs 6% of turnover to know how to put water on coffee, mix a milkshake with a silly name or sell a chocolate brownie. So it was the structure that was wrong.”
But what about the hundreds of millions spent on global advertising for Starbucks that means people almost everywhere knows what it is. I am pretty sure the benefit to a franchisee of paying the royalty is not being taught the Starbucks way of making coffee, but he Starbucks brand. As much as I hardly ever go into one in the UK, I often go to them when I travel as it removes the hassle of trying to work out where to go in a different country. That is the value of the brand.
Paid for locally I am sure, for VAT reasons if nothing else I suspect
Country by country reporting and reporting of tax payments will no doubt increase transparency around tax for these multinationals but how are these companies going to be made to honour a ‘commitment’ to pay their fair share of tax in the countries they trade in?
I am surprised no one has raised (in addition to increased transparency) the idea of a turnover tax designed to tax activity and not just profits.
In the Starbucks/Costa example, companies with similar sales would pay similar amounts of corporation tax in the countries they operate in.
Designing a system where the turnover tax was a minimum requirement and normal profit tax calculations were taken into account after a certain threshold could solve this problem of enforcement which seems to be missing from the current debate.
Alternatively, tax companies along the lines of equity as per the existing bank levy. The banks don’t like it, so perhaps this may be a good thing?
Turnover tax has the same horrible social consequences as VAT
Dear Richard
A lot of people are having a go at Starbucks, which is all well and good, but would you not agree that Amazon are far more of a danger to the UK tax base? Starbucks are just a coffee chain, whereas Amazon are competing directly with large numbers of UK based retailers, and if they succeed in putting those retailers out of business, then it will cost the UK taxpayer billions — literally.
So far they seem to have been left pretty much untouched by both UK Uncut (no Amazon high street shops in which to stage sit ins) and the UK government (nothing in the Autumn statement to suggest that the tax legislation which exempts warehouses from being Permanent Establishments will be repealed, amended or even reviewed). This all seems rather unfortunate.
Yes, I agree
But protest requires visual impact
OK thanks….as regards my second point, do you happen to have a view as to why last week’s Autumn Statement was silent on the issue of UK Permanent Establishment for overseas companies? Perhaps it was that the government simply doesn’t understand that P/E is a separate technical issue from Transfer Pricing….if so that seems ridiculous.
I think it is ridiculous that it was silent on this issue
And I think Article 5 needs to be challenged
The interpretation that Amazon is just a warehousing operation is ludicrous