Starbucks boycott gaining momentum!

[maxmaximus]

Corporation tax is not a tax on the number of outlets so I'm not sure how that is relevant.

 

So, Costa being, as you say, an international group, they could have chosen to create and employ a tax structure as morally bankrupt as that of Starbucks but didn't.

 

I have no idea of Costa's tax arrangements in other countries. How do you know if they are underpaying in other countries? Wouldn't that depend on the relative rates of corporation tax in all the corresponding territories? Do you know if they have any territorially specific tax agreements such as the one Starbucks is shamefacedly arranging now in the UK? Do you have any evidence for any of this?

 

So how much tax did Starbucks pay in the USA? I don't know. What I do know is this

 

in the 14 years since arriving in the UK, the chain has paid just £8.6m in corporation tax.

 

 

- from the article you linked.

 

No. but the number of outlets would give the impression they are bigger in the UK than Starbucks and likely to make more profit than Starbucks and because they are a UK company choose to pay tax in the UK, whilst Starbucks isn’t a UK company so isn’t under any obligation to pay tax in the UK. But just like Costa they do pay all the tax that the law requires them to pay.

The government are at fault for creating rules that allow a foreign company to operate in the UK without having to pay UK corporation tax.

[I1L2T3]

Oh you mean you want HMRC to cherry pick how a business is taxed.

 

Take BA a few years ago and in the days before they got into bed with Iberia and formed IAG. They had a rough trading period and at one point made losses of around £400 but still generated revenue of £1billion+

 

So after making a loss in the hundreds of millions, does it seem fair that HMRC would still come knocking wanting a payment of £20+ million.

 

They do apply different rules to different companies.

 

Small/medium companies: soft targets easy for HMRC to put through the mill

 

Large corporations: some effectively try to make their own rules. Would HMRC sit down to negotiate a deal with a SME at the request of the SME? No way. Anyone who reads Private Eye regularly will know all about this way of working at HMRC - the sweetheart deals, the failure to take large corps to court even when serious wrongdoing is detected.

 

It's corrupt to the core.

[Cyclone]

Oh you mean you want HMRC to cherry pick how a business is taxed.

No, it would be parliament. In much the same way that small businesses pay a lower rate of corporation tax than large ones...

Take BA a few years ago and in the days before they got into bed with Iberia and formed IAG. They had a rough trading period and at one point made losses of around £400 but still generated revenue of £1billion+

 

So after making a loss in the hundreds of millions, does it seem fair that HMRC would still come knocking wanting a payment of £20+ million.

Does it seem fair that companies can move profit around and so pay no tax where it was generated?

 

---------- Post added 10-12-2012 at 08:58 ----------

 

A fairly easy way to crack down on a lot of it would be to insist cross border transactions been companies in the same group at done at cost.

 

Who says what is "cost" when you are paying for the right to use a brand...

 

Fairly easy to avoid as well by just splitting up the group into 2 groups.

[dvp82]

Fair, no it's not because clearly Starbucks are making a tidy profit in the UK, but if the rules allow business to operate in the way some have been, there going to do so.

[Cyclone]

Hence why we are discussing a change to the rules.

You invoked fairness with regards to companies that really make a loss if they still had to pay a revenue based tax.

[andygardener]

Who says what is "cost" when you are paying for the right to use a brand...

 

Fairly easy to avoid as well by just splitting up the group into 2 groups.

 

In the case of wholly owned subsidiaries the cost is zero. In the case of franchises the cost is the actual costs incurred by the UK franchising company.

 

As for splitting the group into 2 groups, if the ultimate owners are the same then they're still the same group. If the ultimate owners aren't the same then it ceases to be a viable way of avoiding tax for the parent company.

[Cyclone]

So in the case of the franchise it can be as large a 'cost' as the parent company wishes. And in the case of a multinational it's nothing so you wouldn't allow them to charge for it (you try proving that it's nothing btw and see how far you get).

 

The ultimate owners might be me (I wish), but if I own them privately then they are 2 separate companies. Or it might be a huge group of shareholders... Either way, you can't declare 2 companies to be the same simply because someone owns shares in both. Most companies will have shares owned in common by the large pension funds and other investors.

[andygardener]

So in the case of the franchise it can be as large a 'cost' as the parent company wishes. And in the case of a multinational it's nothing so you wouldn't allow them to charge for it (you try proving that it's nothing btw and see how far you get).

 

No, that's not what I said.

 

Bigco USA want to move into the UK market. They can set up a subsidiary Bigco UK Ltd. That company operates like any other British company and can claim whatever legitimate costs it incurs against tax. What I'm proposing is that as Bigco UK Ltd is owned by Bigco USA that Bigco UK cannot pay above cost fees to the parent company for products or services and the parent company cannot charge it's UK business for use of trademarks etc. This stops internal group profit transfer across borders. Of course there are real costs involved in building up a brand etc however those have been accounted for in the tax jurisdictional where they are incurred so should not be deducted twice, just as we don't have double taxation.

 

Now if Bigco USA want to operate on a franchise model, that's fine as well. They set up Bigco UK Ltd which can charge whatever fees it wants for intellectual property, training, supplies etc. It can then knock off whatever legitimate costs it's incurred in the UK business off the franchise income before paying tax here. However it's subject to the same restrictions on internal group trade as the non-franchise subsidiary so it must trade at cost with the parent company.

 

Implement that and you get rid of most tax dodging.

 

The ultimate owners might be me (I wish), but if I own them privately then they are 2 separate companies. Or it might be a huge group of shareholders... Either way, you can't declare 2 companies to be the same simply because someone owns shares in both. Most companies will have shares owned in common by the large pension funds and other investors.

 

It not a question of having shareholders in common, it's having the same shareholders that would define them as group companies. If Bob, John and Fred set up 2 companies in which they own equal shares, 1 in the uk and one in a tax haven which charges the uk company spurious fees to remove the uk companies tax liability then they're doing what the corporations have been doing. If they set up the uk company with equal shares and the tax haven company split 50/50 between Bob and John, they're actually defrauding Fred, which is already covered by umpteen criminal and corporate governance laws.

 

Proving group companies is not an impediment to dealing with this tax avoidance problem.

[Jeffrey Shaw]

Or just abolish all UK tax relief for all interest payments.

[Cyclone]

No, that's not what I said.

 

Bigco USA want to move into the UK market. They can set up a subsidiary Bigco UK Ltd. That company operates like any other British company and can claim whatever legitimate costs it incurs against tax. What I'm proposing is that as Bigco UK Ltd is owned by Bigco USA that Bigco UK cannot pay above cost fees to the parent company for products or services and the parent company cannot charge it's UK business for use of trademarks etc. This stops internal group profit transfer across borders. Of course there are real costs involved in building up a brand etc however those have been accounted for in the tax jurisdictional where they are incurred so should not be deducted twice, just as we don't have double taxation.

So you are indeed saying that a brand or trademark cannot be charged for (at least internally).

You're also saying that functions such as group financial management must be charged for at cost... Who is to work out what 'cost' is?

 

Now if Bigco USA want to operate on a franchise model, that's fine as well. They set up Bigco UK Ltd which can charge whatever fees it wants for intellectual property, training, supplies etc. It can then knock off whatever legitimate costs it's incurred in the UK business off the franchise income before paying tax here. However it's subject to the same restrictions on internal group trade as the non-franchise subsidiary so it must trade at cost with the parent company.

 

Implement that and you get rid of most tax dodging.

It's worth more investigation, but I'm not sure it would be anything like as easy as you suggest.

 

 

 

It not a question of having shareholders in common, it's having the same shareholders that would define them as group companies. If Bob, John and Fred set up 2 companies in which they own equal shares, 1 in the uk and one in a tax haven which charges the uk company spurious fees to remove the uk companies tax liability then they're doing what the corporations have been doing. If they set up the uk company with equal shares and the tax haven company split 50/50 between Bob and John, they're actually defrauding Fred, which is already covered by umpteen criminal and corporate governance laws.

I don't think they'd be defrauding anyone. If the UK company buys services from a foreign company which happens to have a subset of the same owners then what exactly is the fraud?

 

Proving group companies is not an impediment to dealing with this tax avoidance problem.

On the contrary, it's vital to make your idea work, if you can't prove that they are the same group, then they can charge what they like and the changes you propose would have no affect.

 

I can see a way around what you propose straight away.

 

I set up a company in Luxembourg, independent of Starbucks (it's Cyclone International Tax Avoidance).

Starbucks USA license me a resaleable license to use their trademark, it costs me a fortune, £40 million or thereabouts.

Fortunately I have a customer, Starbucks UK who will pay me £41 million for it.

 

Under your new rules about trading within a group, Starbucks UK are fine and dandy now. They aren't buying the right to use the trademark from within their group. They shift the profit out of the UK, I (or more like KPMG or Deloitte or some such existing company) makes a small profit for the service, and the only looser here is HMRC (still).

 

---------- Post added 12-12-2012 at 08:35 ----------

 

Or just abolish all UK tax relief for all interest payments.

 

And what effect would this have on amazon and starbucks?