Starbucks boycott gaining momentum!

[Jeffrey Shaw]

Why worry about such effects? Let all companies and individuals lose tax relief, if that's what the UK needs.

[andygardener]

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?

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

 

The same people who work out what the costs are now, before deciding how much to mark them up by. The companies accountants. How can we trust them? Put in place major financial penalties that kick in if costs have been inflated when HMRC check the foreign accounts against the UK accounts.

 

 

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?

 

The key is in the "spurious fees". The aim of the fees is to move taxable profit out of the country. So in the example I gave Bob John and Fred's company is making a profit here which after tax they would have equal shares in. However because the money is artificially moved overseas to reduce the tax burden to a company owned only by Bob and John, Fred loses all his profit. Hence Fred is defrauded by Bob and John.

 

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).

 

I'd already suggested that foreign entities licencing arrangements be permitted only by a UK subsidiary of the foreign entity. So the above would not be an issue.

 

I think you're being far too defeatist about this whole thing. HMRC have a lot of powers now to decide what is and is not deliberate avoidance, they're just not applying them rigorously to big overseas companies.

[green]

HMRC have a lot of powers now to decide what is and is not deliberate avoidance, they're just not applying them rigorously to big overseas companies.

 

As Private Eye pointed out only recently, SME's have been taken to court on numerous occasions for avoidance, however not ONE big corporate have been taken to task.

 

Why?

[Guest sibon]

As Private Eye pointed out only recently, SME's have been taken to court on numerous occasions for avoidance, however not ONE big corporate have been taken to task.

 

Why?

 

Well, you wouldn't be interested in a non-executive directorship of an SME, when you quit Parliament/the tax office... would you:)

 

Do I win a prize for guessing correctly?

[green]

Well, you wouldn't be interested in a non-executive directorship of an SME, when you quit Parliament/the tax office... would you:)

 

Do I win a prize for guessing correctly?

 

Sibon, have you ever thought of standing as an Independent MP? Your one of the very few voices of reason on this board?

 

(sorry for the brown nosing!)

[Cyclone]

The same people who work out what the costs are now, before deciding how much to mark them up by. The companies accountants. How can we trust them? Put in place major financial penalties that kick in if costs have been inflated when HMRC check the foreign accounts against the UK accounts.

HMRC have no access to foreign accounts.

I doubt that any real calculation of 'cost' is ever done. They just pick a convenient recharge figure in order to move profits out of a country.

 

 

 

 

The key is in the "spurious fees". The aim of the fees is to move taxable profit out of the country. So in the example I gave Bob John and Fred's company is making a profit here which after tax they would have equal shares in. However because the money is artificially moved overseas to reduce the tax burden to a company owned only by Bob and John, Fred loses all his profit. Hence Fred is defrauded by Bob and John.

We both understand how it works.

What I'm saying is that from the outside it is nearly impossible to objectively determine what is artificial and what is not.

 

 

 

I'd already suggested that foreign entities licencing arrangements be permitted only by a UK subsidiary of the foreign entity. So the above would not be an issue.

I don't understand what you mean, can you explain. Are you saying that it wouldn't be possible for UK companies to form contracts with foreign ones... That would surely cripple our exports and imports market.

 

I think you're being far too defeatist about this whole thing. HMRC have a lot of powers now to decide what is and is not deliberate avoidance, they're just not applying them rigorously to big overseas companies.

True, they could take a harder line, but I don't think it's anything as easy as you're making out, wave a magic legislation wand and the practice becomes impossible...

[andygardener]

HMRC have no access to foreign accounts.

I doubt that any real calculation of 'cost' is ever done. They just pick a convenient recharge figure in order to move profits out of a country.

We both understand how it works.

What I'm saying is that from the outside it is nearly impossible to objectively determine what is artificial and what is not.

I don't understand what you mean, can you explain. Are you saying that it wouldn't be possible for UK companies to form contracts with foreign ones... That would surely cripple our exports and imports market.

True, they could take a harder line, but I don't think it's anything as easy as you're making out, wave a magic legislation wand and the practice becomes impossible...

 

You honestly don't think large organisations (or small ones for that matter) don't know what their actual costs are? If you don't know what your costs are then you can't file your accounts or work out what profit (or loss) you're making in any given activity. What is and is not artificial is already down to HMRC to determine, hence every year more and more schemes are declared artificial and shut down.

 

If you re-read what I wrote about franchises then I'm clearly not saying that you can't form contracts with foreign companies. All I'm saying is that franchises be conducted through a UK subsidiary, which pays UK tax at the going rate.

[Cyclone]

The cost of something is how much someone else sells it to you for.

 

There is no cost to the parent company to allow a subsidiary to use a brand, it's zero. But that doesn't mean that it isn't legitimate to charge for it's use.

 

Accounts are not worked out using the 'cost' of ephemeral things like allowing the use of brand name, although obviously they do include the much more concrete income that this generates.

 

Declaring a tax avoidance scheme to be outside the law doesn't magically shut it down, the schemes shut down voluntarily to avoid being prosecuted. International companies with deep pockets are much more willing to chance it in court if they don't actually agree.

 

We aren't talking just about franchises though.

I'm talking about Starbucks UK paying a licensing cost to Starbucks Luxembourg for the use of the international Starbucks brand which is owned by the Starbucks USA company.

How do you propose to determine what level is a legitimate cost for paying that license?

[andygardener]

The cost of something is how much someone else sells it to you for.

 

There is no cost to the parent company to allow a subsidiary to use a brand, it's zero. But that doesn't mean that it isn't legitimate to charge for it's use.

 

Accounts are not worked out using the 'cost' of ephemeral things like allowing the use of brand name, although obviously they do include the much more concrete income that this generates.

 

Declaring a tax avoidance scheme to be outside the law doesn't magically shut it down, the schemes shut down voluntarily to avoid being prosecuted. International companies with deep pockets are much more willing to chance it in court if they don't actually agree.

 

We aren't talking just about franchises though.

I'm talking about Starbucks UK paying a licensing cost to Starbucks Luxembourg for the use of the international Starbucks brand which is owned by the Starbucks USA company.

How do you propose to determine what level is a legitimate cost for paying that license?

 

It's really not complicated. It isn't legitimate to charge group companies for IP, it's like me setting up andygardener (luxembourg) and charging myself huge sums to use the name in the UK, which just happen to wipe out my tax liability here. It is not legitimate to charge yourself for something you already have for the purposes of moving untaxed profit out of the country. Likewise it isn't legitimate for me to set up andygardener (luxembourg) which buys fuel at £1.40 a litre and sells it to me at £14 a litre, thus wiping out my tax liability in the UK. Dead simple.

[Jeffrey Shaw]

Back to basics:

Tax evasion is unlawful

Tax avoidance is lawful.

So why all the fuss about the latter?

Simple solution: remove the tax avoidance devices that the law explicitly allows.