Would Starbucks pass the Fair Tax Mark?

So Ritchie asks us to pitch in with ideas for the multinational version of the Fair Tax Mark:

If anyone wants to suggest methodology they’re welcome to do so but remember the focus is on:

tax policy
transparency about what the business does
tax accounting
disclosing tax avoidance

OK.

And this is appended to a piece that states the following:

Much of Starbuck’s good work building up a positive corporate social responsibility profile over sustainability and support for fair trade products was undone when it was revealed to have paid no tax for 14 out of the 15 years it had been operating in the UK.

Excellent. So. let us consider whether Starbuck’s would gain any conceivable version of the Fair Tax Mark?

I think it’s fairly obvious that they would not given that the entirely manufactured furore about their non-payment of tax is being used as a justification for the existence of the Fair Tax Mark.

However, this is something of a problem as Starbuck’s really was making a loss and their accounts did indeed reveal everything that was necessary to check this. There were really only two things out of the ordinary at all. The first was payment of royalties for the brand name into a Dutch company. This is entirely normal practice, indeed we’ve EU law to tell us that it’s illegal to try and tax such payments at source. Hell, HMRC even reviewed the rate and it was adjusted to one they would prefer.

The second was the payment of a 20% margin to the coffee bean purchasing operation in Switzerland. Again, there’s nothing unusual or even dodgy about this. Some money should be paid as margin to a bean purchasing organisation. Not to do so would of course be manipulating transfer pricing regs. For any arms length supplier would clearly be trying to charge a margin on its services: thus a wholly owned one should as well.

All of this was entirely obvious in the accounts. As was the fact that even if you adder these back in then the UK arm was still making a loss.

Which brings us to an interesting question. If a company that had clear accounts, was not dodging tax, a company like Starbuck’s, would not get the Fair Tax Mark, then what use is said Mark? And if it would get it then how can anyone be using Starbuck’s as an example of why we need said Mark?

10 thoughts on “Would Starbucks pass the Fair Tax Mark?”

  1. “then what use is said Mark?”

    It is very useful indeed. It raises £200 a pop per SME for an entrepreneur located in Downham Market and presumably will cost considerably more for large companies.

  2. And as he said himself yesterday

    “How long does it take to read some tax notes and look at an annual return?”

    Nice little earner he’s trying to develop there.

  3. Another interesting question would be, what stance would The Fair Tax Mark assessor take if Starbucks came seeking a Fair Tax Mark, supplied tax notes and annual return, made it clear that there was significant business depending on it, but the assessor knew that Ritchie had recently slagged off Starbucks again as the prime example of all that is wrong with capitalism?

    And having awarded Starbucks with its Fair Tax Mark, would the organisation face calls for a boycott from Richard Murphy on account of its neoliberal capture?

    Quite frankly, the only objective (oh how I love using that word in this context) response would be to hand Starbucks it’s Mark; legal action would follow if it didn’t. Yet, after all that he has said about it, Ritchie could never permit Starbucks to receive the award.

  4. Ironman

    Had an exchange with him today on http://www.taxresearch.org.uk/Blog/2014/02/27/the-fair-tax-mark-gets-cross-party-parliamentary-support/#comment-area

    It seems his endorsers (usual suspect politicians, ICAEW etc) never checked this out beyond the thin information publicly available.

    And yet he crows as if their endorsement means anything.

    And if a candidate for the mark is turned down, the decision is final, no route to appeal, no publication if the appeal is upheld.

    There may be a kernel of a good idea here. But Murphy and the ECRA are too caught up in partisan politics to be the right people to deliver it.

    Heck, ECRA has a fairly extensive boycott list http://www.ethicalconsumer.org/boycotts/boycottslist.aspx – there is no way any of these are getting the mark. Forget it.

  5. I can’t see why Starbucks shouldn’t get a mark, if the multi-national criteria are anything like the UK-only ones. Even if Murphy refuses to award the policy points, it should be able to get 14/20 for the others even if it pays no tax. And if it makes an accounting loss it gets full marks for tax paid automatically, whatever the amount of tax due might be.

    I’m a little confused as to why the UK-only criteria include references to tax havens anyway: surely the existence of an active non-UK subsidiary immediately debars you from being UK-only, and so you can’t apply for the mark as it currently exists? So the sole function of those two marks is to catch people who don’t use tax havens, but haven’t ruled out doing so in the future. Very odd.

  6. Pellinor

    Well then, if asked I would say “Oh yes, completely ruled out all future use of an offshore tax structure”

    And then he gives me the Mark and off I go, buying every dodgy scheme on offer

  7. Mr Murphy has a blog here:

    http://www.accountingweb.co.uk/blog-post/richard-murphy-fair-tax-mark

    Is anyone a member on there (or fancy registering) – they might ask him precisely that?


    A) Would Starbucks get his Mark, and if not why not?

    B) It would look as if he now has some healthy competition:

    http://markoffairtax.wordpress.com/

    For an aspiring young business, which of these two Marks would offer the best value for money and why?

    I would be very interested in his opinion on this?

  8. Dennis The Peasant

    “If anyone wants to suggest methodology they’re welcome to do so but remember the focus is on:
    tax policy / transparency about what the business does / tax accounting / disclosing tax avoidance”

    Yes, let’s focus in on this…

    1) TAX POLICY: Tax policy is a matter determined by legislation and law, not companies. No methodology to develop… a company’s tax policy is a function of the tax policy (as defined by tax law) where the company resides and where it does business.

    2) TRANSPARENCY: I don’t know about the UK, but in the US this already is a matter of law and regulation. Publicly held companies are required to make public certain information that has been deemed by legislators and regulators to be essential for owners and potential investors. No methodology needed… the transparency required by law is in the 10-K and 10-Qs.

    3) TAX ACCOUNTING: The methodology already exists. In the US its GAAP and just about everywhere else its IFRS.

    4) DISCLOSING TAX AVOIDANCE: In US tax law, the only requirement a company has is to fully and accurately disclose its revenues and pay the appropriate taxes. There is no requirement in law (IRC) that deductions be taken. Given that, any deduction, whether it be for cost of goods sold, wages or anything else, constitutes tax avoidance. Tax avoidance is the reduction of taxable income (and therefore actual tax) by any and all means legally available. For a company to ‘be transparent’ with regards to tax avoidance could, taken to the extreme, end up requiring the public disclosure of the company’s tax returns and tax workpapers. Given that US corporate tax returns for publicly held multinationals run into the thousands of pages, you could end up with the requirement that a company would have to make public thousands of pages of tax returns and internal documentation to earn the “Mark”.

    So what it boils down to is that Ritchie wants to re-invent the wheel with regards to the first three items and make the wheel too large to use with regards to item number four.

    Sounds like typical Ritchie to me… I cannot image any publicly held company doing anything other than laughing in Murphy’s face and sending in a security detail to have him removed from the premises.

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