Starbucks S****ucks – or does it?

Another storm has erupted – this time in a coffee cup rather than the traditional teacup – around the subject of tax avoidance. It has been reported in the Press that Starbucks has paid no tax in the last 3 years and only £8.6 million on some £3 billion of turnover over a 14 year period. Those who are both caffeine-addicted and easily influenced by what they read in the papers are now getting their lattes and cappuccinos elsewhere.

It should not come as a surprise to hear that Starbucks is not a UK company but a US-based multinational with a UK operation. Isn’t it strange that UK plc would like UK multinationals to pay tax on all of their worldwide profits but seem genuinely shocked when a multinational based outside the UK also seems to be paying the lion’s share of its tax outside the UK? It is reported in the Guardian that Starbucks pays 31% tax on its worldwide profits so if it is playing the tax avoidance game, it is spectacularly bad at it.

The issue is not one of avoidance but of transfer pricing - the values at which cross-border transfers of intra-group services take place. Companies are required to document and justify their transfer pricing policies. Where HMRC suspects that transfer pricing is being used to siphon profits out of the UK and into low tax jurisdictions – an understandable temptation – they can counteract this, although this will usually be subject to agreement with the tax authorities  of the other countries concerned.

Wherever there is controversy on the subject of so-called tax avoidance in the UK, a certain Richard Murphy and his company Tax Research, pop up like  proverbial bad pennies. A Pooterish figure, whose deep insights into the taxation of multinational corporations presumably derive from his many years of completing tax returns for little old ladies and local businesses while a partner in a small firm of Chartered Accountants, he has somehow managed to convince lobby organisations and journalists that he really knows his stuff, while slinging mud at those who actually do. Like the journalists, he is always keen on a fat, juicy headline, no matter how thin the underlying story happens to be.

Writing in the Guardian’s “Comment Is Free” section (which is just as well as it’s certainly not worth paying for), he complains that multinationals and local businesses do not compete on a level playing field. The top rate of corporation tax in the UK is 23%, not the 31% that Starbucks pays worldwide so one wonders what exactly Starbucks’ tax advantage is. Perhaps the real competitive disadvantage that the owners of UK businesses tend to suffer is that they have accountants like Richard Murphy who presume to act as their moral guardians and not as creative tax advisers.