I’ve been having a brief discussion with Richard Murphy on his blog. He says that Starbucks was clearly going against the spirit of the law and avoiding tax.
I have asked him for details of this, but he simply asserts that “The case against Starbucks is well known” and “The case was absolutely clear”.
Incidentally, he then deletes my further comments, which I find disappointing given that I am pains to comply with his comment policy, such as by using my real name rather than a pseudonym, and taking care to explain why I reach the conclusions I do.
Unfortunately, although last year I did have a good look at the Starbucks position I didn’t then, and don’t now, understand the detailed case against them.
I know that Murphy and others say they were avoiding tax, but that is a very vague accusation.
I know there were references to coffee beans and royalties, but it is clear that HMRC have reviewed the amounts paid and agreed the rates, so the letter and the spirit of transfer pricing law have been observed.
So far as I am aware there is no permanent establishment issue, as with Google and Amazon – Starbucks was not selling into the UK in a manner taxable elsewhere, but was trading here.
So what is the actual accusation against Starbucks?
The closest I can come to is that Murphy is on record as saying that tax avoidance includes structuring operations so as to follow the law, while not complying with what the law ought to say. I have serious issues with that contention, but if we assume it to be true for the sake of argument then the only way I can find Starbucks to go against the spirit of the law is to look past the letter of the law, look past the agreed intention of the law, and adduce some deeper spirit which is not apparent.
So when transfer pricing law is considered: the letter is that one should apply the arm’s length principle; the spirit is that a group should not set prices so as to shift profits and erode tax bases; and the deeper spirit is… what? Do we need to look at tax law in general, rather than transfer pricing, and say that there is some spirit of tax law that says large companies must always pay UK tax?
I really am at a loss. If anyone can point me to a clear case against Starbucks, such as Murphy assures me exists, I would be very grateful.