Shouldn\’t an accountant know this?

Their special report out today has the title “Starbucks’s European tax bill disappears down $100 million hole”. It shows that Starbucks’s company accounts in Germany and France employed the same tactics there that Reuters recently showed it has used in the UK: reporting losses to the taxman while boasting healthy cashflows to investors.

Starbucks told investors its European businesses made a $40 million profit in 2011, but accounts filed for its UK, German, and French units, which make up 90 percent of European revenues, showed a loss of $60 million.

Starbucks Chief Financial Officer Troy Alstead said the company simply used a different measure of profit when reporting its performance to investors and when filing its tax returns.

So, who are they telling the truth to, the investors or the tax authorities? Answers, written in the froth of a cappuccino please, would be welcome.

Err, shouldn\’t an accountant know that tax accounts are prepared to different standards than investor accounts? Because, umm, the taxman insists?

35 thoughts on “Shouldn\’t an accountant know this?”

  1. There are dozens upon dozens of differences between the set of accounts a company will produce for external consumption and those produced for the taxman. Usually as a result of HMRC insisting things are done either in a really archaic way, or in a way that is totally different from the international standards.

    Anything to do with capital – purchases, disposals, depreciation etc – can cause wild differences when you start to follow the stupid HMRC regs.

  2. Christ on a bike. The company I used to work for used three parallel sets of depreciation calculations alone – one for tax, one for investors and one for internal decision making. Any accountant who doesn’t know that Deferred CT is essentially the difference between book depreciation and tax depreciation multiplied by the tax rate deserves to be struck off.

  3. A company has a duty to minimise its taxes in anyway it can that is within the law. If the government doesn’t like the situation, it can change the tax laws and companies can decide if they still want to do business in that country. (Personally, I’m not so fussed about the “within the law” bit).

  4. A company has a duty to minimise its taxes in anyway it can that is within the law.

    Where does it actually say this?

    Companies Act 2006?

    Ignorance.

  5. Or in the US

    The Delaware Chancery court has rejected the contention that there is an independent duty of directors and officers to minimise taxes payable by the corporation (or framed in another way, that it would be wasting corporate assets not to do so): Seinfeld v Slager (Del. Ch. 29 June 2012).

    The correct view is that there can’t be such a duty, because there may be a variety of reasons why a company may or may not choose to take advantage of tax-planning opportunities. This is a decision best left to the business judgment of management. While overpayment of taxes could conceivably be a breach of fiduciary duty, there is no freestanding duty to minimise taxes, and failure to do so is not automatically a waste of corporate assets

  6. To you its a judgement call. To others, including those running companies with shareholders, its somewhat more. Don’t mind us if we utilise legal expertise from others over your opinions.

  7. “There is no fiduciary duty for a company to employ tax minimisation.”

    That’s entirely true, if by ‘no duty’, you mean ‘a basic duty’. You’re suggesting that it’s fine for company directors to take company cash and build a bonfire with it, unless some law explicitly says they can’t. That’s plainly a load of bollocks.

    Once again you’re demonstrating that you don’t know the first thing about the subject at hand.

  8. If the tax minimisation costs more than the money saved, such as if we had nice, sensible, low, flat taxes, then yes minimisation would be a waste. But if it saves the company, the shareholders, money, it absolutely forms part of that duty.

  9. why would a company want to minimize its tax bill if, as Tim like to remind us, companies don’t pay taxes?

  10. There is no duty to shareholders for a company to minimise its tax

    Companies Act 2006 Section 172

    A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to—

    (a) the likely consequences of any decision in the long term,

    (b) the interests of the company’s employees,

    (c) the need to foster the company’s business relationships with suppliers, customers and others,

    (d) the impact of the company’s operations on the community and the environment,

    (e) the desirability of the company maintaining a reputation for high standards of business conduct, and

    (f) the need to act fairly as between members of the company.

    No fucking duty whatsoever, Dave, so your bonfires shit is just that.

  11. It means that if the decision was taken to be taxed according to a set of ethical ideals, the shareholders could do nothing, as long as the decision did not arise in overpayments of tax.

    It really is quite simple. You’re just too dogmatic to understand. Deranged, really.

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  13. “There is no fiduciary duty for a company to employ tax minimisation.”

    Arnald… on break or did the fryer conk out on you?

    First of all, “companies” don’t have fiduciary duties… the managements and boards of companies have fiduciary duties. If you’re going to lecture us on said duties, it’d be nice if you knew who actually has those duties.

    Second of all, managements actually do have a duty to shareholders to optimize the financial results of the company in both the near- and long-terms. A part of that optimizing involves tax planning, thus ensuring that the corporation legally minimizes it’s tax obligations to the extent deemed prudent by management.

    If you understood economics, accounting, finance and taxation – which you most assuredly don’t – you’d know that corporations don’t pay taxes… people do. Corporate taxes are paid by one of three different groups of people… shareholders (in for form of lower profits, share price and dividends), customers (in the form of higher prices) and employees (in the form of lower wages and discretionary employee benefits).

  14. “It means that if the decision was taken to be taxed according to a set of ethical ideals, the shareholders could do nothing, as long as the decision did not arise in overpayments of tax.”

    Gibberish. Management’s duty is to pay the legal minimum required of all taxes it is subject to. Management is not required – by law – to pay taxes in adherence to some set of “ethical ideals” (which, conveniently, are never actually codified), but to pay taxes in adherence with the law…

    You and Ritchie can twaddle all you like about taxation based on “ethical ideals”, but as always, the adults in the room will simply laugh at you and walk away. And rightly so.

  15. “It means that if the decision was taken to be taxed according to a set of ethical ideals, the shareholders could do nothing, as long as the decision did not arise in overpayments of tax.”

    Has anyone else noticed the inherent contradiction in Arnald’s gibberish?

    If a company is ensuring it is not making overpayments of tax, it is engaging in tax minimization via tax planning… which is exactly what they are supposed to be doing. And if they are doing said minimizing via “ethical ideals”, it would appear that “ethical ideals” and tax law are one in the same in Arnald’s world.

    All the intellectual consistency of Ritchie is a dumber, more obnoxious package.

  16. Perhaps those who talk about how organisations should act ‘ethically’ or according to some ‘moral obligation’ should define a national set of such ethics. They should form a political party and run based on such definitions.
    Perhaps they would find that not everyone agrees on their morals and ethics.

    A company can act according to an ethical principle, there is a market share in doing so – just as there is a market share in fairtrade, made in the UK, locally sourced etc.
    Perhaps Arnald could set up and run a company based on his ethical and moral ideals, including taxation.
    Or he could run for office to implement his vision on other companies.

  17. “Perhaps Arnald could set up and run a company based on his ethical and moral ideals, including taxation.”

    I’m not sure there’s much of a market for “ethical” burgers ‘n’ fries… even amongst Frogs.

  18. Just a small point re Arnald’s last submission:
    “It means that if the decision was taken to be taxed according to a set of ethical ideals, the shareholders could do nothing, as long as the decision did not arise in overpayments of tax.”

    Does Arnald understand what a limited company is?
    Who makes the decision to be taxed ethically, Arnald?
    The board of a company is simply the representatives of its shareholders. The management, those employed to run the company on behalf of the shareholders. Therefore, a ndecision to be taxed ‘ethically’ would have to be made with the authority of the shareholders, So, how can the said shareholders then “do nothing”? They just did.

  19. OK – look. If company X decides that by publicly declaring that it will not partake in particular forms of tax minimization, it will acquire more goodwill, and hence more business, from a public which is opposed to corporate tax loopholes, that’s a valid business decision. It may or may not turn out to be correct, but it is nonsense to suggest that X has a duty either to do this or not to. Its duty is to assess the business risks of each possibility, and make the best decision it can. If X’s shareholders don’t think that that decision was right, they can replace the board with one that will make the other decision, but the question of lawsuits for breach of fiduciary duty does not arise.

    And yes, there’s probably a market for “ethical” companies, just like there’s a market for “ethical” investment trusts that don’t sell tobacco or weapons etc.

  20. Sam>

    The directors have a duty to maximise the long-term value of the company. That means neither paying too much tax, nor too little (such that either penalties or negative publicity accrue). That means they have a duty to minimise the tax paid right up to the point where paying less would cost more money.

    I would also note that there’s a difference between incompetence and bad faith. A director who honestly believed that paying 99% of some company’s profits in voluntary tax would benefit the business is (almost certainly) incompetent, but one who believes he has a (personal) ethical duty to make the company pay more than minimum tax despite the costs to shareholders would be acting in bad faith. The former is not in breach of his duty as a director; the latter is.

  21. If we substituted “business” for “company” would we not describe the the impact of paying business as:
    Business taxes are paid by one of three different groups of people… owners (in the form of lower profits), customers (in the form of higher prices) and employees (in the form of lower wages and discretionary employee benefits).

  22. Hmmm…. are business rates high enough? Are taxes on customer spending high enough?
    Or could a government (this or next perhaps) push them higher (perhaps to avoid a cut in NHS budget).

  23. Let’s suppose Worstall’s Commentariat (WC) is collectively running a chain of coffee shops, called Queequegs. WC has before it a proposal to minimize corporation tax by means of an ingenious international scheme which, quite legally, will cause Queequegs’ profits to end up in Switzerland not the UK. Implementing this scheme will save a lot of tax.

    However, analysis shows that a similar scheme has generated much adverse publicity for a competitor, and that sensitive latte-drinking types have deserted it in droves. A similar sales collapse at Queequegs would cost it more than the tax scheme hopes to save.

    Are you saying that WC has a duty to lose Queequegs money by implementing the tax scheme? Or is Arnald in fact right?

  24. “Are you saying that WC has a duty to lose Queequegs money by implementing the tax scheme? Or is Arnald in fact right?”

    Or are you presenting a false dichotomy? The answer to both questions is ‘no’. See my comment at #28 for more details; there’s no sense repeating myself. The key part would be “they have a duty to minimise the tax paid right up to the point where paying less would cost more money.”

  25. Dave: some comments – #6 and #22 in particular – have stated, without qualification, that “Management’s duty is to pay the legal minimum required of all taxes it is subject to”. Arnald#17 is right to point out that there are other considerations. (But he’s wrong to swear at you.)

  26. I agree with sam
    There can be cases where blatant tax minimisation is bad for the company.
    That doesn’t mean Arnald is right as he/she has tried to imply that it is always bad and lied about the position of a company whose directors took an unethical “ethical” position. A pity that certain individuals have swallowed his bait and tried to argue that it is always right.
    e.g. If I wanted to minimise my tax liability I should either have a separate business ‘phone or buy a machine to record the length of all my ‘phone calls so that I could claim the cost of each since my ‘phone bill doesn’t itemise calls costing less than 50p. That would cost me more than the tax saved.
    The principle is that the directors must act in accordance with the articles of association and the laws of the land, subject to which they have a fiduciary duty to act in the interests of the owner(s) of the company. Not paying more tax than is desirable, which often but not inevitably means not more than necessary.

  27. “There can be cases where blatant tax minimisation is bad for the company.”

    Really? Specific examples, please… complete with a detailed listing of the negative consequences expressed in verifiable damages.

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