Tax-acino – Sweet n’low taxes

Dividend Waivers

This week we have had the latest in a long line of high profile tax-related news stories. In the latest “shocking” revelations, it seems that Starbucks have, despite daring to be simultaneously both successful and well advised, have paid no corporation tax in the UK in the three years. The clear implication is that the “evil corporate giant” has joined the long list of the rich and/or famous exploiting obscure tax loopholes to the detriment of the rest of us ordinary folk left to pick up the tab. On the face of it, it’s as cheeky as leaving a tips tray out after you’ve served yourself and cleared away your own rubbish but that’s a whole different moan! And the hyperbole was not restricted to the red-top tabloids this time. I listened in the car to a BBC reporter falling into all the classic cliches and sound bites to keep up the rich tax-dodging theme even as the facts just didn’t stack up.

And then of course they rolled out the customary small coffee shop owner who got a grilling about as tricky as if he had been appearing on John Craven’s Newsround (for those like me of a certain age)! Asked if he paid his “fair share” of taxes, he answered of course that in his situation he would do if only he was able to make any profit at all.
Which is a nice segue into the facts. Because at the heart of the Starbucks story is the most fundamental fact of all… the fact that for the last three years, Starbucks has failed to make a profit in the UK! I can only assume that the small coffee shop owner thinks they should pay tax anyway! Aaaahhhh but I can already hear you tell me about how the big international corporate empire is artificially moving profit away from the UK and into low tax countries.

Ignoring the fact that international companies are required to allocate their profits across the range of countries in which they operate and pay taxes accordingly, the thing that seems to have really wound up the BBC et al is the practice of Starbucks UK paying a fee to the USA for use of the brand and worldwide marketing rights and in doing so paying away its profits. I’m sorry but if Starbucks UK was a franchise – which is what it effectively is – it would, like every other franchise pay a fee for precisely these services. Why should Starbucks be denied a right that every other operation that has a similar structure quite understandably uses?

And more to the point, HMRC have very wide powers (and you can bet your life they will be using them here) under the transfer pricing legislation to investigate, review, control, amend and negotiate the amount of fees paid by the likes of Starbucks to any related company overseas. Given that Starbucks currently employs approximately 8,000 people in the UK, all of whom are paying tax and national insurance, pays VAT, rents retail space and buys and consumes goods and services in the UK across a wide range of sectors, I think we should concede that their presence here is worth far more than any pittance of corporation tax they may or may not pay.

And of course if they haven’t paid tax for 3 years, it’s a fair bet that they have done so for many years before that. You know, when they actually made a profit!
Look we are not a nation of communists. We shouldn’t fall into the trap of thinking all business is bad. Business creates wealth, it creates jobs, it innovates, it is the petrol that drives everything else we have as a nation. It trades with poorer nations and helps spread wealth internationally. It is a force for good. We should avoid biting the hand that feeds everyone.

Mine is a skinny frappucino with caramel and chocolate topping!