This is fascinating

During a three-hour grilling of the multinationals, the Public Accounts Committee heard that Starbucks had secured a favourable “tax ruling” from the Dutch Government, which has requested confidentiality. The US-owned chain has been sending 6 per cent of British revenues to regional headquarters in Amsterdam in the form of royalties for intellectual property. After talks with Revenue & Customs, royalties were lowered to 4.7 per cent, but the change was described as “cosmetic” by the Conservative committee member Stephen Barclay.

So HMRC has investigated, has asked for and received a correction, so Starbucks is entirely compliant then?

11 thoughts on “This is fascinating”

  1. And dropping the royalty by a fifth is hardly “cosmetic”.

    Do these people have any idea how low retail net profit margins are? Putting an extra 1.3% of turnover straight onto the bottom line is huge.

  2. I’m curious as to how HMRC are able to ask for and get a reduction at all?

    It seems to me that if a subsidiary of a multinational in one country is allowed to pay royalties to a subsidiary in another country, then what stops them from setting the royalties exactly equal to their profits and thus

    And why would they pay the royalties to an American or a Luxembourgeois subsidiary, rather than somewhere with no corporation tax at all?

  3. James James – because the UK has rigourous transfer pricing rules that give HMRC the power to adjust inter-company prices to an arm’s length price (ie what an independent person would charge for the same goods or services). Starbucks has comparable examples of this for the royalties given it charges its independent franchisees for these services. There are also other open market comparables.

  4. Pingback: @RichardJMurphy gets it wrong again

  5. Starbucks doesn’t have any independent franchisees. That’s a core part of its business model. Even for companies that do, the cost structure of a national licensee is completely different from that of a franchise outlet – marketing costs are vastly higher in the former case, so the reasonable royalty is far lower.

    HMRC has all of this data on file and more, as you’ll likely find out if you report tax accounts for your business where the assorted ratios appear to be right out of line.

    On the “why not pay to somewhere with no tax at all” front, places with no corporation tax at all tend to be dodgy as hell one way or another – whether that’s in the sense that everyone’s a crook and will steal your money (Middle East), or in the sense that the only reason you could possibly have an account there is to dodge tax which looks suboptimal when trying to pretend to your home taxman that you haven’t been tax dodging (BVI, Caymans).

  6. John B – the 10-k says that 9% of their revenues comes from independent licensees (which they charge royalties) so presumably that could be a starting point for a comparable royalty payment although it may needsome adjustment.

  7. That’ll be a few bob from its discount franchise brand Seattle’s Best (which isn’t really comparable, because hell, which would you choose to operate if given the choice?), plus licenses for merchandise (Starbucks-branded packaged coffee drinks).

  8. No, it appears to be Starbucks per page 4 of their 10K as Seattle’s Best Coffee is separately mantioned at the end of the section. So it says, “Most licensees are prominent retailers with in-depth market knowledge and access. As part of these arrangements, we receive royalties and license fees and sell coffee, tea and related products for resale in licensed locations. … For our Seattle’s Best Coffee brand, we use various forms of licensing, including traditional franchising.”

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