On the subject of Starbucks royalties to the Netherlands

Sorry, apologies to Ritchie and UKUncut ‘n’all. From the new EU report on Starbucks:

Starbucks Coffee BV functions as the head office for the EMEA. In this
capacity, Starbucks Coffee BV licenses certain Starbucks trademarks, the
Starbucks shop format and the Starbucks corporate identity to related and
unrelated operators of Starbucks shops. Starbucks Coffee BV holds these
intellectual property rights (hereinafter “IP”) in license of its shareholder, Alki
LP, against payment of a royalty. In the system applied by Starbucks worldwide,
the companies that operate the shops pay a royalty for the use of IP and a royalty
for the supply of coffee. These distributor companies may be related as well as
unrelated parties. Both parties pay the same royalty.

It’s an honest royalty paid at arm’s length rate.

You’re wrong. Time to admit I think?

11 thoughts on “On the subject of Starbucks royalties to the Netherlands”

  1. Tim

    It won’t make any difference.

    Richie & UKcnut or whatever they are called have found a witch and no amount of proof that witches don’t exist will stop them calling for the witch to be burnt.

  2. Facts are for neoliberals and belong to the hegemony. Richard Murphy realised this long time ago. It’s a pity microeconomists, statisticians, bankers, accountants, those who have captured government and walk through the revolving door haven’t kept pace with him.
    I’ve just had a couple of drinks; he makes sense to me now.

  3. Andrew C – they have a scales with a duck on one side and hunting the witch now to put on the other side who weighs the same as a duck.
    Clothing and a false nose optional.

  4. That’s a convenient cut Tim, just before the words “Starbucks thus maintains…” which make clear that the report is not endorsing the argument.

    If you skim through to the end of the report you’ll see that it finds that the “royalty payment…does not reflect the value of the IP” and concludes by forming the preliminary view that Starbucks’ agreement with the Dutch tax authorities constitutes State Aid.

  5. ‘Fraid not Paul. There’s two different royalties under discussion. From the UK PLC to the Dutch company for use of the Starbucks brand. This is the one Ritchie was complaining about, insisting that it was tax avoidance/evasion/abuse. It lost the UK tax money.

    At which point there are two questions.

    1) Is it OK to pay royalties. Yes, so much so that EU law states that it’s actually illegal for a member state to try to tax royalties flowing to a company in another member state.

    2) It the royalty at the “right” rate. Meaning, an arm’s length one under the transfer pricing rules. As we see here the answer is also yes. That royalty, from the UK company to Holland, which is recall what Ritchie was complaining about, is just fine.

    Then we’ve the second royalty, the one actually being discussed in this paper. From the Dutch coffee roasting company back to the UK LLP. That is the one the EU isn’t sure about. And that’s not something that Ritchie et al were ever complaining about. For it has no effect whatsoever on UK tax but does on Dutch tax.

    The EU is not complaining about the same thing that Ritchie was. Far from it, the EU investigation shows that what Ritchie was complaining about is not a problem at all, in fact it’s absolutely straight down the line and just fine.

  6. Come off it Tim. The report doesn’t discuss at all whether the royalties paid from the UK are at an appropriate level. But it finds that the Starbucks corporate structure in Europe has the overall effect of shifting much of its profits into Alki LP. And because that’s an LLP, we know little about where the money goes from there.

    It’s the payments to Alki LP which may be illegal, because the amounts seem to be arbitrary. But if the overall tax structure is abusive, individual payments made to facilitate it, even if legal in themselves, are not straight down the line.

  7. But that’s not what Ritchie and UKUncut were complaining about. They were complaining about the royalty going from Starbucks UK to Starbucks Holland. And that is all, as that quote shows, entirely above board.

    Remember, they were saying that Starbucks was dodging UK tax, not Dutch.

    And no, it’s not shifting “much of it’s profits in Europe” this way either. The royalty rate was around 4% of gross sales. And entirely reasonable rate on a franchise. Entirely comparable with McDonald’s and all the rest.

  8. The royalty rate was around 4% of gross sales. And entirely reasonable rate on a franchise.

    Indeed it is. It’s in fact quite a good rate, and is neither arbitrary or out of whack with the norms.

    I was recently involved in a technology transfer licensing negotiation and the proposed royalty rate was about 7%, rather on the top of the bracket for what is considered “normal” for TT. We tried to push it down somewhat as a result.

    Geez, all that bitching and moaning over a 4% gross sales royalty rate? I guess all the other problems in the world have been solved then….. :/

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