Hodge the Dodge still doesn’t get it, does she?

The second device Starbucks used to shift profits out of the UK was to buy all their coffee beans in Switzerland, another low-tax jurisdiction. As we established at a Public Accounts Committee hearing, however, only 30 staff worked there — and the coffee beans never entered Switzerland.
Yet because the coffee was ordered from there, Starbucks outlets in the UK had to pay the Swiss part of the business a 20 per cent mark-up on the original price.
That cleverly knocked another chunk off Starbucks’ UK profits — and further reduced the amount of corporation tax payable in the UK.

It would be illegal if Starbucks didn’t pay a margin to the Swiss coffee bean broker.

Lying hound.

30 thoughts on “Hodge the Dodge still doesn’t get it, does she?”

  1. So Much For Subtlety

    Actually there is a third option to SE’s conclusion above. She could be dim enough not to get it, but still self-aware enough to know that she does not get it. So when she pretends there are simple answers, she is lying because she knows what she knows is not true, but she is not smart enough to work out what is or is not untrue.

  2. Not arsed to read the article. So what is she suggesting? The being a broker is illegal? that being a broker making a profit is illegal? Or that brokers shouldn’t pay tax and only the end user pays tax?

    I’m sure she’s thought through the logical conclusion of her demands so she must be advocating one of these,no?

  3. Personally, SMFS, don’t think she’s that thick. Although it is certainly an option.

    I’ll ride (?) Hanlon’s Razor and call it deliberate and malicious lies for blatant political point scoring.

  4. Perhaps people should just repeatedly quote her saying things like “Stemcor paid all the tax that was legally due”.

  5. Magnusw
    September 10, 2016 at 9:30 am

    Not arsed to read the article. So what is she suggesting? The being a broker is illegal? that being a broker making a profit is illegal? Or that brokers shouldn’t pay tax and only the end user pays tax?

    I’m sure she’s thought through the logical conclusion of her demands so she must be advocating one of these,no?

    I think the point she’s trying to make – and failing because people like this will never come straight out and say what they mean lest they lose the protection of the ‘motte-and-bailey’ – is that since Starbucks is not *selling* coffee in Switzerland, they should not be using a broker in Switzerland and that doing so is *solely* for the purpose of ‘shifting profit and could have no other legitimate reason.

    Of course, its perfectly legal to arrange your affairs to reduce your tax bill and there probably is another business reason to do this – but she’s not going to admit that maybe the people running Starbucks might know their business better than she.

  6. Surreptitious Evil
    September 10, 2016 at 9:39 am

    Personally, SMFS, don’t think she’s that thick. Although it is certainly an option.

    I’ll ride (?) Hanlon’s Razor and call it deliberate and malicious lies for blatant political point scoring.

    its likely some combination of both. RM, for example, switches between reckless misunderstanding of what he’s talking about and outright lying – as long as it appears to support his bias.

  7. dearieme – “That’s quite subtle, SMFS”

    Is it? I think a lot of Ritchie’s bluster is because he knows that he doesn’t know. He just hopes that if he is confident enough we won’t notice he doesn’t know. So he is both ignorant and yet lying.

  8. ‘Then each outlet in the UK has to pay head office a steep ‘royalty’ — a percentage of its earnings — for using the brand and certain business processes.

    This is what tax professionals call ‘transfer pricing’ — and a huge industry of accountants, lawyers, bankers and advisers has grown up to facilitate it.’

    No it’s not. Dingbat doesn’t know what transfer pricing is? My GAWD!!!

  9. FFS, the entire basis of taxing multi-national corporations rests on transfer pricing, and HMRC are on it like hawks. Does she really think they’d let any company buy their raw materials (in an internationally traded item no less with very transparent pricing comparisons available) at an inflated price in order to shift profit abroad? I mean if I was HMRC I’d sue – she’s effectively calling them incompetent, or worse, corrupt, in suggesting this is what is happening.

    And the ‘Starbucks pay an extra 20%’ nonsense – does she a) know what other coffee chains pay for their beans? (Answer no, so the fact they pay a 20% markup is irrelevant if the overall price is lower or comparable to their competitors) and b) the cost of the beans per cup is pence we are told so an extra 20% isn’t shifting a great deal of profit to Switzerland either, and c) corporate tax rates in Switzerland vary from 12-24% (depending on where you are incorporated) so the UK’s plans to reduce ours down to possibly 15% hardly makes them cheaper than us.

    Here you go – cost of beans is 8p/cup, half the cost of the cup, lid and stirrer, 16p/cup.

    http://www.dailymail.co.uk/news/article-2429666/Coffee-surprising-reality-CUP-costs-twice-beans-flown-South-America.html

  10. Regarding Margaret Hodge: I certainly lu don’t have a brief for the hypocritical tax dodger. However, she is being a little less thick here than we are imagining, at least regarding Switzerland. And if we don’t fully grasp what dhe’s saying then perhaps we aren’t in a position to shout “thick” at others. She isn’t citing the 20% mark up as a problem in itself, but as the bad outcome resulting from naughty practices. She is saying the Swiss company has no capacity for its own agency, so is in no postion to and is in fact not buying coffee beans on its own behalf. Instead she says it is a slave company, signing invoices for purchases of product as instructed from the UK, with the true destination of thoat product already decided well in advance.

    She is thick in that she clearly doesn’t realise she is accusing Starbucks executives of carrying out a (not very) sophisticated, serious fraud.

    But then , thick is at thick does, isn’t it folks.

  11. @Ironman: “it is a slave company, signing invoices for purchases of product as instructed from the UK, with the true destination of that product already decided well in advance”

    Isn’t that the case with any broker of any product? They get an order for X tonnes of Y, go out and procure it and arrange supply to the customer? They don’t buy X tonnes on spec then try to offload it. I mean I don’t know what world Hodge lives in but I doubt any broker of anything actually takes delivery of the physical product – thats the whole point of a middle man, he facilitates the process between producer and consumer. As a farmer I use a grain broker – he lives in a house, I don’t send him 1000 tonnes of grain and tip it on his driveway and expect him to shift to the docks where the actual customer is. And given a broker is just a paperwork operation, 30 people seems a pretty large number to me for what is alleged to be fictitious operation.

  12. I read somewhere (sorry don’t remember quite where….) that 75% of the world’s coffee is traded through Switzerland. In a similar way to marine insurance through London, say. That is why it goes through Switzerland, not for tax reasons.

    As for the branding mark-up being a tax dodge, first of all, HMRC can disallow any expense they feel is not justified, and secondly, try setting up an independent coffee shop next to Starbuck’s and see how much business you make…..

  13. @Ironman “She is saying the Swiss company has no capacity for its own agency, so is in no postion to and is in fact not buying coffee beans on its own behalf.”

    Out of interest, how many brokers have you come across that buy things on their own behalf?

    In fact, to be pendantic, the very definition of a broker is “a person who buys and sells goods or assets for others”.

    Still, as you say, thick is as thick does.

  14. Bloke in North Dorset

    “Is it? I think a lot of Ritchie’s bluster is because he knows that he doesn’t know. He just hopes that if he is confident enough we won’t notice he doesn’t know. So he is both ignorant and yet lying.”
    Or as we said in the army, if you’re going to talk bullshit, talk it confidently.

    Does Hodge understand brands? Starbucks’ brand is that they will sell you the same sludge wherever you go. To guarantee that, and so maintain their brand image, they single source their key product, coffee beans. This so gives them bulk buying discounts.

    And as Jim says, HMRC have seen it all wye it comes to transfer pricing. Even our little consultancy which had an office in HK, was monitored very, very closely.

  15. I’m worried about Arnald.

    There are legions of piss-taking posters appearing with impunity on Murphy’s site who would have been reported had Muprhy’s little fluffer seen them on his site

  16. Given that Starbucks’ business model is heavily based on its IP, I don’t think it is unreasonable for there to be a royalty.

    Presumably it is the P that Hodge et al. do not like.

  17. OK. There is a difference between a broker; one who buys and sells on behalf of clients, a trader; one who buys and sells, finding willing sellers and buyers for itself, and a captive company; one that purports to buy and sell and produces invoices to that effect when in fact the sale:purchase agreement is between two other parties, is already in truth completed and the captive company is being used to create the illusion of a re-routing. Which of these we have here is a matter of fact. Hodge doesn’t know. HMRC might know, but hasn’t really done anything about it so probably doesn’t know. And I’m damn sure nobody on this blog knows.

    What I do know is Hodge isn’t focusing on the mark up here. It’s one small part of Tim’s post, so no problem there. Is it too much, however, to expect somebody else to read the article?

  18. @ironman.

    Again, out of curiosity, how much direct experience do you have of HMRC TP enquiries? To claim so confidently that they won’t have done anything about it and probably don’t know what is going on. Poor lazy dupes easily outwitted by crafty accountants? 12 years working in HMRC including time on secondment in what was then known as International Office gives me the confidence to say you’re wrong.

    You’re starting to sound like one of those 9/11 conspiracy theory nuts. No matter what you are presented with you will stick to your conspiracy theory, jumping from groundless argument to new groundless argument as each is shown to be hollow.

  19. Both?

    For every £100 earned at a Starbucks in Britain, it turned out that £6 had to be sent to Amsterdam. Even HMRC thought this was excessive as ‘royalties’ for the brand, and it cut the amount to £4.70.

    That’s almost like saying “even following the law, it would be a bit less”.

    She narrates more appalling avoidance. And then outraged at being offered £20m (by Starbuck’s MD over a cup of coffee), she comes out with:

    Surely tax had to be assessed by the tax authorities, not decided on the whims and assessments of the companies themselves?

    I would suggest “make your mind up dear”, but she can’t be that dim?

  20. Google

    But the company told HMRC that their sales in Britain were not $4.06 billion (£3.06 billion) but a mere $396 million (£299 million), because the sales were apparently transacted in Ireland.

    Brittin suddenly announced that Google would be paying the UK Exchequer £130 million in tax for the ten years from 2005 to 2015

    Google’s offer amounted to £13 million a year over ten years — an effective tax rate of 3 per cent, when every small and medium-sized business was paying 20 per cent corporation tax.

    Does she think tht SME’s pay 20% corporation tax on their sales..:)

    I can’t see any other reference in there to a “profit” number of several hundred million per year?!

  21. Following our hearings with Starbucks, Amazon and Google, I’d held meetings with the two Eds’ staff and suggested appropriate policies to promote fairness in the tax system.

    On one occasion, at a meeting with my researcher, a representative from Ed Miliband’s office argued that my agenda was ‘anti-business’, ‘too complicated’ and ‘not an agenda that was going anywhere any time soon’.

    What? Is she admitting quite frankly that even Ed thought she was bonkers?

  22. AndrewC

    I’m not claiming to be the world’s greatest expert. And my previous comments contain enough questions and enough qualified statements for me to be comfortable enough with what I’ve written.

  23. You’ve either got to be mendacious or stupid to keep confusing turnover and profit like that.

    Note that’s not a boolean XOR there…

  24. The media point to turnover like its what the company makes.
    Completely ignoring things like costs.

    Then the media educate people that xxx has massive turnover that they need to turn over to government…

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