Starbucks in a coffee grind

August 9th, 2010

From the Mail on Sunday (and it’s good to see these issues arising in such places):

A year after its boss attacked the British economy, Starbucks is in the sights of Revenue & Customs over the arcane taxation issue of transfer pricing.

In a note to its annual British accounts, Starbucks said: ‘The company is in discussion with HM Revenue & Customs regarding its transfer pricing policy.’

According to the accounts for the year ending September 27, 2009, the Starbucks Coffee Company (UK) received a tax credit last year of £115,000, up from a tax bill the previous year of £20.6 million. The company’s overall loss for the year was £52 million, up from £26 million the previous year.

The notes in the accounts state that if its transfer pricing policy was adjusted by the taxman, ‘the company believes it has sufficient unrecognised deferred tax assets that it could utilise’. In other words, it could cope with a bigger tax bill.

But the company is defending its position. A spokesman said: ‘We are in discussions with HM Revenue & Customs regarding Starbucks’ transfer pricing policy, which we believe to be reasonable.’

I see this as good news for three reasons. The first is that taking on high profile targets is good for HMRC, and its staff’s morale. Second, it gets appropriate publicity for these issues. Third, chains such as Starbucks where the brand is the supposed value but which have  losses in the UK when there is considerable profit in the group as a whole should be subject to such scrutiny.

Of course, country-by-country reporting would resolve all reasonable questions on the allocation of profits. This is why we need it. It’s why HMRC should be demanding it. But the ConDems are backing down from it, after previous incumbents at the Treasury gave it so much support.

Why is that I wonder?

Originally published on the Tax Research UK blog.

Written by Richard Murphy

Follow @FinTrCo