On Sunday the Telegraph noted :
The government is to back controversial plans to force businesses to reveal the taxes they pay in every country they operate in.
Vince Cable, the Business Secretary, said that he supported “country-by-country” proposals first put forward by the European Parliament that would mean all businesses detailing the contribution they make to the state.
He said any moves would stop companies being “tarnished” by tax rows where the detailed facts were not available.
That's the good news. Now the not so good:
However:
The Treasury is also believed to be supportive of moves to increase what was described as a “transparency push” by one official.
And
Although the Treasury said that applying the new rules to banks first would be sensible, it is thought that the Chancellor also agrees that the ultimate target would be for all companies above a certain size to comply.
And more from Cable:
Mr Cable said that the issue had been discussed in Government and that there would be legislation if necessary.
“It is quite possible that some of those companies [Starbucks] have been traduced in a very unfair way,” he said. “As it happens my staff spent quite a bit of time talking to Starbucks and going through their accounts with them and it did turn out that they hadn't made any profits here on which to pay tax.
“They actually had a good story but because you had to burrow away it didn't emerge and their reputation has been severely tarnished as a result.
“It would have been much better if the whole thing had been open.”
Let's hope Vince is vaguely on message on this one.
There's much more on country-by-country reporting, a concept I created a decade ago, here and here.
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So Starbucks had reported their financial position in the UK correctly, do not owe any tax and had not been abusive – have I understood that correctly?
If so then surely all the people calling for boycotts etc need to apologise for attempting to damage a law abiding company?
Vince says that
I do not
And Reuters have not changed their story
Nor have the PAC
So the person who’s had a chance to look at the detail says Stabucks are fine.
You say they’re not, based on not looking at any detailed evidence; and you are supported in this by a newspaper which is looking for a story which will resonate with the public, and by a committee with a chairman who has publically stated she knows nothing about tax but who is also looking for a cause which will resonate with the public. So, two groups that one could expect to be prejudiced.
O-kay… you may want to pick your friends more carefully, you know. If it’s appropriate to judge someone by the company they keep you’re not doing so well here.
Not that I have any particular liking for Cable, but “looking at the evidence” is always a good thing in my book.
You ignore the Reuters evidence, entirely
Why let some facts impede you?
The Reuters stuff is opinion, not evidence.
The PAC stuff is hyperbole and political posturing.
There is a difference between:
a) someone saying something; and
b) someone saying something having analysed the evidence critically
One of these is more valuable than the other.
And you think BIS examined the evidence? Where is the evidence of that bar a Vince Cable quote ?
Get real
So to be clear; you say that Starbucks is a tax avoider, using transfer pricing and high royalty payments to group companies in low tax jurisdictions to reduce its CT liability to Nil and, had it not done these things, it would be paying CT in the UK. Does that sum it about right?
I refer you to the Reuters report
Of course they are tax avoiders! It’s absurd to suggest otherwise.
HMRC looked at the royalties twice since 2003 when they commenced and failed to spot that these were completely artificial.
Any idiot can see it is artificial!
They may not be artificial – but the rate has been reduced
Now why was that?
The interest rate is aso high and the coffee price…..
Yes. It’s been reduced so it’s being paid at the correct now. Like Richard says.
No it’s being paid at a new rate now
Yes. Since 2008 it has been paid at the new correct rate. And they had a big prior year adjustment for the years before.
So it’s all correct now at the new rate like you said.
Respectfully – the word ‘correct’ cannot be used here
Agreed for the time being could be
But correct, no; that’s just not possible
Yes. It is clearly artificial. I can’t believe HMRC missed that both times.
Why can “correct” not be used?
Do you mean that as there are a range of reasonable answers you can’t say 4.7% is definitely correct where say 4.65% wouldn’t be – the most you can say is that 4.7% is better than 4.765?
Or is it that you think (say) 4% would be correct, but 4.7% has been agreed and so is in use but inappropriate?
Or do you mean that there should be no royalty, so there can be no correct answer to an inappropriate question?
To suggest that there is a correct answer to something that can at best be an approximation shows the limits to your thinking
I’d stop embarrassing myself if I was you
Ah I see. So you’re not actually suggesting anything; you’re just faithfully reporting an opinion expressed in a news agency report. So, what is your opinion?
I think the Reuters report is solid, reliable and stood up under scrutiny at the PAC
Which is why Starbucks have agreed to pay tax
Starbucks gave in to a witch hunt caused by people who did not know the facts.
Respectfully, I think we got it right
And you have presented no evidence to the contrary
If you take the Starbucks accounts and strip out everything that you and otheres say is objectionable (which isn’t much, to be fair), you still end up with a loss before tax.
That suggests that even with free coffee and no royalties, the UK business is still struggling.
The only way to argue that Starbucks UK actually has profits is to ignore the UK accounts and look at the US ones, which show the group as a whole being profitable. But of course US GAAP isn’t the correct GAAP for UK tax, and the UK is not necessarily a microcosm of the world; and in any case, if you don’t like the UK accounts why are you happy to rely on the US ones?
Or, of course, to go with unitary taxation and argue that Starbucks should pay tax in the UK because it makes profits in the US and elsewhere. Which would be a reasonable approach, if there were an agreed system of unitary taxation that could be applied.
Starbucks say the business is profitable…
Everything else is profit shifting, which as the OECD says is undermining the integrity of tax systems
You have no case at all
You assume the profit is right: the case is it is not
“The case is…” – can I see your evidence for that? You simply assume the profit is wrong.
Starbucks say the business is profitable, using US GAAP at EBITDA level for internal reporting purposes. UK GAAP as adjusted for tax purposes is nowhere near the same thing – you keep in and leave out entirely different sets of income and costs. The US is simply saying that the US makes a certain profit out having a business in the UK, which is not at all the same thing as saying the UK makes a profit.
For example, my bank makes a profit out of me having a mortgage. I don’t. Is my mortgage profitable? Yes, but I’m damned if I’m going to pay tax on it: it’s not my profit!
The royalties serve Starbucks the same way. They’re a profit in the US, but a cost in the UK. They’re profits of trading with the UK, not of trading in the UK – and at present the UK only taxes the latter. As there is no rule to tax the former, Starbucks simply cannot be avoiding that non-existent tax.
Respectfully that’s nonsense
And you are trolling again
OK mate, I’ll drop it.
Pellinor really is talking nonsense, do I sense he has an undisclosed interest here?
His mortgage analogy is laughable, what he seems to fail to appreciate is that his bank and himself are not the same company, in the case of the multinationals they are the same company, the uk branch passes its profits on and then claims its business is not profitable when it is, I believe that is what you call transfer pricing, correct me if I’m wrong.
I’m no tax professional but it seems to me unthinkable to not have a system where you have to declare what’s made in each country you operate, the current system is built for being cheated!