Monday, 29 September 2014

Politicians called "Flynn" vs Starbucks

I was Googling around and stumbled across the following two items.

From the FT:

Mr [Patrick] O’Flynn also delighted the [UKIP conference] by promising to scrap inheritance tax. “Tax was already paid on this money in life, it should not be levied in death as well.”

He also took aim at “the Starbucks economic model” as he proposed a new “turnover tax” for large businesses to ensure that companies paid a set proportion of turnover in corporation tax and other taxes. It comes amid political and public anger over tax avoidance by foreign denominated companies such as the coffee giant.

Early Day Motions:

That this House notes that despite having almost one-third of the UK coffee shop market, Starbucks has paid corporation tax only once in the past 15 years; calls for Starbucks and other multinational companies to be taxed on the real value of their production in the UK, not an arbitrary feel-goodamount and, failing this, for each individual outlet to be taxed on its profits, as is the expectation for businesses in Worksop and Retford such as Miss Poppy's Coffee Shop or The Bay Tree...

Signed by, among others, Paul Flynn, a Welsh Labour MP.

Both Flynns, from populist right and populist left have gloriously missed the point(s).

Just to muddy the waters with a few, er, facts:

1. Starbucks outlets already pay a turnover tax, it's called VAT. With their computerised tills and sales records and everything, it is highly unlikely that they evade a penny of that.

2. I have no reason to assume that Starbucks outlets evade or avoid any Business Rates or PAYE obligations either.

3. Many Starbucks outlets are franchises, licensees or other kinds of sub-contractors, who no doubt pay just as much - or as little - tax as Miss Poppy's Coffee Shop.

4. AFAIAA, the reason why Starbucks pay so little UK corporation tax relative to UK sales is because they pay large licence fees or royalties to whoever owns the "brand". Those payments are tax deductible here and taxable in the country of the recipient. (If you ask me, the concept of an overseas entity earning such royalties in the UK without having a UK trade is complete nonsense, so in an ideal world, the royalty owner would be assessed to UK tax as per normal, but leave that aside for now).

The default rule is that the payer has to deduct 20% income tax from such royalties, so if you pay £1 royalties, you pay 20p or 21p less in corporation tax but 20p more in withholding tax, the whole thing is a wash and not a tax avoidance strategy.

But under most double tax treaties, i.e. with civilised countries, the royalty is then taxed somewhere else instead. From the point of view of Starbucks, this is only shifting the liability around but not reducing it. To the extent that Starbucks are evading tax - and I have no inside knowledge on whether they are or aren't - it can only be if they are paying royalties to non-treaty countries without deducting tax.

So if you want to get Starbucks to pay the 'right' amount of tax, then all you have to do is make sure they are deducting and paying the withholding tax where appropriate, and if they are doing this properly, then for G-d's sake, give them credit for it.

There's no need to invent new fantasy taxes, just make sure that the existing rules are being followed.



Kj said...

Blimey, they know nothing of the tax system they supposedly are in charge of do they?

Lola said...

Or, you levy LVT on their landlords and scrap all the awful things like VAT, CT NI Withholding Tax etc. etc. and therefore any need for double taxation agreements and off we go to the races.

Mark Wadsworth said...

Kj, exactly!!

L, exactly, but I will post my full response later on.

Bayard said...

"Just to muddy the waters with a few, er, facts:"

Facts? what have they got to do with a good rabble rousing story? The more we think that our economic problems could be solved by Starbucks paying more tax, the less we are going to be inclined to ask how we got into this mess in the first place.

Mark Wadsworth said...

B, yes, but funny how when anybody mentions LVT, the Homeys start barracking you for every last detail on how it would work down to pounds, shillings and pence and what colour the appeal forms would be.