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Modern economics

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Ron Webb
Posts: 289
Joined: May 9th, 2009, 11:21 pm

Re: Modern economics

#1341 Postby Ron Webb » April 29th, 2015, 2:08 am

Latest post of the previous page:

Re: Starbucks --
Nick wrote:Taking the items in turn: I hope you'll accept that they have to buy coffee from abroad! They have been accused of diverting profits by buying through Switzerland. However, apparently some 75% of world coffee is traded through Switzerland. Not because of tax, but because it has established itself as the leading market, in just the same way as London has for marine insurance or fine wine.

According to Reuters, the point was that they were buying their beans from their own subsidiary in Switzerland; and the suspicion was that the internal price was set artificially high, in order to transfer profits to them. It's hard to prove that, however. The Swiss subsidiary was described as only "moderately profitable", but (remarkably!) "Swiss law does not require the unit to publish accounts".

VAT: this is very high at 17%. In other words, 85% of the price of a cup of coffee is value added by Starbucks. Effectively the benefit of being able to supply you with a presumably acceptable cup of coffee at a desired location at the right time. So when we hear about Starbucks "paying no tax" on a historical turnover of £3 billion, we can see that that is complete nonsense.

Well, since the VAT is collected at the point of sale, it's hard to say whether the corporation or the consumer is actually paying the tax. Even so, do you really think that 17% is a reasonable tax rate for corporations? How much are personal tax rates in UK?

Profit: This year they have made a profit, by closing loss-making outlets. Note also, that there is a difference between profits and taxable profits, which are always likely to be lower in a younger growing company. We see exactly the same will Ocado, who have only just started to make any profit at all. And, we hear, the swines are then sending profits back to the US. Is that a tax-dodge? Hardly! US corporation tax is a lot higher than in the UK.

Starbucks UK was paying substantial royalties on "intellectual property" to its European head office -- supposedly in Amsterdam, although the president of the parent company is actually in London. It's not clear where the money went after that, but (again from the Reuters article) "Professor Michael McIntyre at the Wayne State University Law School said it was rare for such fees to be repatriated to the United States."

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Nick
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Re: Modern economics

#1342 Postby Nick » April 29th, 2015, 11:11 am

Hi Ron, and thanks for your comments and the reference to Reuters. :D

I'm going to leave aside the question of whether Starbucks are somehow deceiving their investors: that was not the issue I was addressing (though it may be valid, I don't know).

Ron Webb wrote:Re: Starbucks --
Nick wrote:Taking the items in turn: I hope you'll accept that they have to buy coffee from abroad! They have been accused of diverting profits by buying through Switzerland. However, apparently some 75% of world coffee is traded through Switzerland. Not because of tax, but because it has established itself as the leading market, in just the same way as London has for marine insurance or fine wine.

According to Reuters, the point was that they were buying their beans from their own subsidiary in Switzerland; and the suspicion was that the internal price was set artificially high, in order to transfer profits to them. It's hard to prove that, however. The Swiss subsidiary was described as only "moderately profitable", but (remarkably!) "Swiss law does not require the unit to publish accounts".
There may be a "suspicion", but that is because people somehow think that Starbucks are getting away with something, rather than any actual figures or evidence. Checking the price of beans would be very easy. And though there is no need to publish separate accounts for every unit, (which is not actually remarkable) that does not preclude HMRC from asking (and receiving!) very detailed questions.There is specific UK legislation against artificial transfer pricing. Furthermore, this has already been officially investigated:
reuters wrote:Starbucks was the subject of a UK customs inquiry in 2009 and 2010 into the company's transfer pricing practices. This was "resolved without recourse to any further action or penalty", a Starbucks spokesman said. HMRC declined to comment on the probe.
So no. Beans are not being purchased at artificially high prices to transfer profits.

VAT: this is very high at 17%. In other words, 85% of the price of a cup of coffee is value added by Starbucks. Effectively the benefit of being able to supply you with a presumably acceptable cup of coffee at a desired location at the right time. So when we hear about Starbucks "paying no tax" on a historical turnover of £3 billion, we can see that that is complete nonsense.

Well, since the VAT is collected at the point of sale, it's hard to say whether the corporation or the consumer is actually paying the tax. Even so, do you really think that 17% is a reasonable tax rate for corporations? How much are personal tax rates in UK?
To go right back to the beginning, the accusation made go something like "Starbucks turned over £3 billion, but paid no tax". We can see, however, that Starbucks "paid" something like £500 million in VAT. So the idea that Starbucks generated no tax is ludicrous. But you are right to the extent that it is predominantly the customer who suffers the cost of VAT, even though Starbucks "writes the cheques". That is a matter of tax incidence, not legislation, avoidance, evasion or anything else.

But then you go on to say "do you really think that 17% is a reasonable tax rate for corporations?" Well, that 17% is on turnover, not profits. It is paid whether the company makes a profit or not. If you think it is not high enough, for some reason, just raise VAT to, say, 30%. Who would end up paying it? The consumer. The shareholders are not receiving any income to be taxed, are they? And any that they might receive in future are taxed at their highest rate, but taking account of corporation tax already paid. So corporation tax is just an advance payment of personal tax; the corporation, though a legal entity, is merely the organisation of a group of people, not a life itself.

Profit: This year they have made a profit, by closing loss-making outlets. Note also, that there is a difference between profits and taxable profits, which are always likely to be lower in a younger growing company. We see exactly the same will Ocado, who have only just started to make any profit at all. And, we hear, the swines are then sending profits back to the US. Is that a tax-dodge? Hardly! US corporation tax is a lot higher than in the UK.

Starbucks UK was paying substantial royalties on "intellectual property" to its European head office -- supposedly in Amsterdam, although the president of the parent company is actually in London. It's not clear where the money went after that, but (again from the Reuters article) "Professor Michael McIntyre at the Wayne State University Law School said it was rare for such fees to be repatriated to the United States."[/quote]If royalties are "substantial" it is because Starbucks operations are substantial. People will use Starbucks in a new town because they are familiar with it. If you think royalties are not valid, then be my guest: open a coffee shop next to Starbucks, charge the same prices, offer exactly the same service, and watch yourself go broke. And if HMRC believe that royalties are being used to shift profits artificially, they can just disallow some (or conceivably all) of them. More or less at the stroke of a pen. (Exactly the same applies to interest payments).

The fact that the president is in London is of no relevance. Any more than it would be if the parent company were in London, but the president lived in Monaco. You wouldn't insist that no tax was paid in London, would you?

As for repatriation of profits, this demonstrates the dead-weight cost of tax. If it is to go to US shareholders, then it will be taxed. But what incentive is there to deliberately move your money to somewhere you will have it taken off you, rather than investing it for the future? But in any case, the article says that overall, Starbucks paid 31% tax overall. When you consider that in some countries in which they operate, the UK for example, where tax rates are lower, at 20%, that is not exactly tax avoidance is it?

An finally, some comments on the Reuters report:

Accounts filed by its UK subsidiary show that since it opened in the UK in 1998 the company has racked up over 3 billion pounds ($4.8 billion) in coffee sales, and opened 735 outlets but paid only 8.6 million pounds in income taxes, largely due because the taxman disallowed some deductions.
Corporations don't pay tax on income, they pay tax on taxable profits, as defined by law. So we can see that the taxman has no problem in assessing the correct tax payable in the UK.

Over the past three years, Starbucks has reported no profit, and paid no income tax, on sales of 1.2 billion pounds in the UK. McDonald's, by comparison, had a tax bill of over 80 million pounds on 3.6 billion pounds of UK sales. Kentucky Fried Chicken, part of Yum Brands Inc., the no. 3 global restaurant or cafe chain by market capitalization, incurred taxes of 36 million pounds on 1.1 billion pounds in UK sales, according to the accounts of their UK units.
So what? Some car makers make profits, some make losses. So what?

Troy Alstead, Starbucks' Chief Financial Officer and one of the company officials quoted in the transcripts of calls Reuters reviewed, defended his past comments, saying the company strictly follows international accounting rules and pays the appropriate level of tax in all the countries where it operates. A spokeswoman said by email that: "We seek to be good taxpayers and to pay our fair share of taxes ... We don't write this tax code; we are obligated to comply with it. And we do."
Quite.

There is no suggestion Starbucks has broken any laws.
Quite. If you want different laws, then pass them.

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Re: Modern economics

#1343 Postby Ron Webb » April 29th, 2015, 4:01 pm

With all due respect, Nick, I think you're missing the point. As Reuters said, "There is no suggestion Starbucks has broken any laws." The suggestion is that whatever they're doing (and we don't know exactly what), it ought to be illegal. "Starbucks has been telling investors the business was profitable, even as it consistently reported losses [to HMRC]." How can that be?

I find it remarkable that the Swiss operation is not required to provide detailed accounts, while the UK operation is. It seems to me that any unit that is taxed as a separate entity should be required to report as a separate entity. But apparently the Swiss see things differently.

That being the case, I have no doubt that the top executives in Starbucks would be doing everything legally possible to move their profits to the tax jurisdiction with the lowest corporate tax rates and the most lenient tax laws, in this case Switzerland and/or Amsterdam. The internal price of coffee beans and Starbucks "intellectual property" would be set as high as legally possible. If I were a shareholder, I would demand it.

On the other hand, if the net result is that a profitable (from the shareholders' point of view) UK company is paying virtually no corporate tax in the UK, then it seems to me that the legal boundaries for these prices need to be tightened. As you said, "If you want different laws, then pass them." Indeed, that is the point.

Meanwhile, if I were a coffee-drinking citizen of the United Kingdom, I would definitely prefer to buy my coffee from a company that pays corporate taxes in the UK. (And the VAT doesn't count, because the VAT applies regardless of which coffee shop I patronize.)

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Alan H
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Re: Modern economics

#1344 Postby Alan H » April 29th, 2015, 5:18 pm

+1

I buy Costa wherever possible.
Alan Henness

There are three fundamental questions for anyone advocating Brexit:

1. What, precisely, are the significant and tangible benefits of leaving the EU?
2. What damage to the UK and its citizens is an acceptable price to pay for those benefits?
3. Which ruling of the ECJ is most persuasive of the need to leave its jurisdiction?

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Nick
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Re: Modern economics

#1345 Postby Nick » April 29th, 2015, 5:23 pm

Ron Webb wrote:With all due respect, Nick, I think you're missing the point.
Steady on, Ron! I don't get much respect on this forum! It'll take a bit of getting used to! :D

As Reuters said, "There is no suggestion Starbucks has broken any laws." The suggestion is that whatever they're doing (and we don't know exactly what), it ought to be illegal
. The suggestion is, that because they have high turnover, they somehow ought to be paying tax, even when none is due, so that other people can spend it. To class that as illegal, without any evidence, is rather nasty and illiberal. If, as is also the accusation, they are artificially syphoning profits out of the UK, then that would be illegal already. They have been investigated & found to be in order within normal parameters.

"Starbucks has been telling investors the business was profitable, even as it consistently reported losses [to HMRC]." How can that be?
Taxable profits are not the same as company profits. Corporate tax computations start with company profits, add disallowables and other figures, such as depreciation, then subtract capital allowances, R & D and such like to give a figure for taxable profit. The figures are never the same for a company the size of Starbucks. That could well be it. But it would be far more likely that it is the investor who is being sold a pup than that the company is not paying the right amount of tax according to law. Dunno, and not the point I am addressing.

I find it remarkable that the Swiss operation is not required to provide detailed accounts, while the UK operation is.
Not quite. I don't know the requirements of the Swiss, but I am pretty sure the Swiss tax authorities would require detailed accounts and computations, just the same as the UK does. It is the freedom for any Tom, Dick or Harry to know the tax affairs of others, which is restricted.

It seems to me that any unit that is taxed as a separate entity should be required to report as a separate entity. But apparently the Swiss see things differently.
And that is really up to the Swiss, isn't it? Or should our tax authorities start telling Canada what to do?

That being the case, I have no doubt that the top executives in Starbucks would be doing everything legally possible to move their profits to the tax jurisdiction with the lowest corporate tax rates and the most lenient tax laws, in this case Switzerland and/or Amsterdam.
As discussed, "moving" profits is not allowable. But until countries all have the same tax laws and rates, the different regimes will tend to impact, for better or worse, on the economic activities undertaken in different countries. If that means that investments occur where they are likely to be most successful, then there's a lesson to us all, isn't there?

The internal price of coffee beans and Starbucks "intellectual property" would be set as high as legally possible. If I were a shareholder, I would demand it.
The law does require the directors to act in the interests of the shareholders. But a) that does not extend to illegality, and b) it is a legal requirement that international transactions are done "at arms length". In other words, artificial transfer pricing is illegal. Starbucks have not been accused of doing anything illegal, so their transfer prices are fine.

On the other hand, if the net result is that a profitable (from the shareholders' point of view) UK company is paying virtually no corporate tax in the UK, then it seems to me that the legal boundaries for these prices need to be tightened. As you said, "If you want different laws, then pass them." Indeed, that is the point.
The number of companies worth billions, in spite of barely making any profits, is larger than you think. This especially true of the more recent internet-based start-ups, not least Amazon, but also Starbucks, Ocardo, Lastminute.dom etc., etc. It is perfectly acceptable for growth to be the best strategy rather than short-term profits.

Meanwhile, if I were a coffee-drinking citizen of the United Kingdom, I would definitely prefer to buy my coffee from a company that pays corporate taxes in the UK. (And the VAT doesn't count, because the VAT applies regardless of which coffee shop I patronize.)
There may be reasons for choosing a small local coffee-house, but I think they would be rather surprised to hear you ask how much tax they paid. I can almost hear the conversation now..... "I demand that your prices are raised, so that you make sufficiently large profits, so that you pay large amounts of corporation tax...." And should we switch from Tesco's to Sainbury's, asTesco's won't be paying any corporation tax this year...?

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Nick
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Re: Modern economics

#1346 Postby Nick » April 29th, 2015, 5:33 pm

Alan H wrote:+1

I buy Costa wherever possible.


Then this might interest you: from here. Offered without comment(, except that I agree with his view of UkUncut).

SATURDAY, 8 DECEMBER 2012

Costa Coffee v Starbucks - a totally misleading comparison
From the BBC:

Starbucks' announcement [that it will 'voluntarily' pay £10 million corporation tax in the UK each year] comes after much public anger over the revelation of how little corporation tax it pays in the UK, with some people saying they would boycott its outlets.

The company has paid just £8.6m in corporation tax in its 14 years of trading in the UK, and nothing in the last three years, despite UK sales of nearly £400m in 2011. Starbucks has reported a taxable profit only once in its 15 years of operating in the UK, often reporting losses...

UK Uncut, a group that protests against corporate tax avoidance in the UK, said that Starbucks' announcement was not enough... "The £10m that Starbucks has estimated it may end up paying is £5m less than that paid by their nearest competitor Costa coffee."

Starbucks has 760 outlets across the UK and says it contributes "£300m to the UK economy" each year. Rival Costa has 1,479 coffee shops.
--------------------------------------
(They are completely ignoring the fact that catering services are fully VAT-able, so Starbucks must be paying about £80 million in VAT. VAT-able businesses pay 1/6 as much in Business Rates as they do in VAT = £13 million (about £17,000 for each of 760 shops, looks about right). They then pay twice as much in rent, a privately collected tax of £26 million. Let's assume that wages and salaries make up half their turnover and that's taxable at average rate 40%, that's another £80 million. Tot that up and Starbucks is handing over about £200 million a year in tax. Not nothing. I got a good kicking for pointing this out at a Leftie meeting yesterday. But I digress as usual.)
--------------------------------------
If you know anything about international tax, you will know that that is a totally stupid and misleading comparison. Here is a bare bones crash course, if you do not know and understand this (like those idiots UK Uncut) then you might as well keep your mouth shut:

1. Most countries have a rule which says that dividends from overseas subsidiaries are exempt.

2. Different countries have different corporation tax rates. As a generalisation, the larger the country, the higher the rate.

3. Most countries allow companies in a group to pay each other 'management charges' or 'royalties' which are sometimes subject to withholding tax of between 10% to 20%, and sometimes exempt, all depending on double tax treaties and prevailing rates. The UK has tax treaties with most civilised countries; if you want to pay/receive cross-charges to/from other subsidiaries in those countries, the withholding tax rate is low or zero. If you want to pay royalties to a subsidiary in a tax haven, the withholding tax rate is 20%.

4. Companies try to minimise the total corporation tax they pay, but if there is a 'choice' as to which country they pay in, then as a tie-breaker, they prefer to pay more tax in their 'home' countries than abroad (shareholders are more likely to get credit for this when they receive dividends).
---------------------------------------
So applying these rules:

- if a UK based group has a subsidiary with a profit of £100 in a high corporation tax country (say 30%) where the withholding tax rate is 20%, it will prefer to get those profits out as a cross-charge of £100. It suffers 20% (£20) withholding tax, which it claims as a credit against UK corporation tax of 24%, so it pays another £4 in the UK. Total tax bill £24.

- if the same UK based group has a subsidiary with a profit of £100 in a low corporation tax country (say 15%) with a withholding tax rate of 5%, it will prefer to pay the £15 tax in the other country and take an £85 dividend which is not taxed in the UK.

- if the same UK based group has a subsidiary with a profit of £100 in a medium tax country (say 24%) it is pretty indifferent whether it pays itself the profits as a dividend or cross-charge. But it will be incurring UK head office costs which are tax-allowable, so there is no point having tax-free income because they can't offset the costs. So on balance, they will go for cross-charge rather than dividend, especially if the withholding tax rate is lower than the corporation tax rate in the other country (which is nearly always the case).

So we can safely assume that:

- Costa Coffee (part of Whitbread), a UK-based international group, will be underpaying corporation tax in other countries and paying roughly the "right" amount in the UK.

- Starbucks, a US-based international group, will be underpaying corporation tax in other countries (including the UK) and paying roughly the "right" amount in the USA.

Summary: you cannot compare the two companies' UK corporation tax payments, it is a diagonal comparison. Before we slag off Starbucks (who pay far too much tax in the UK) and hold out Costa Coffee as a shining example, we should be asking how much corporation tax Costa Coffee pays or avoids in other countries. Obviously, Costa Coffee is made to pay far too much tax in the UK (VAT and PAYE), separate topic.

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Alan H
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Re: Modern economics

#1347 Postby Alan H » April 29th, 2015, 5:34 pm

:hilarity:
Alan Henness

There are three fundamental questions for anyone advocating Brexit:

1. What, precisely, are the significant and tangible benefits of leaving the EU?
2. What damage to the UK and its citizens is an acceptable price to pay for those benefits?
3. Which ruling of the ECJ is most persuasive of the need to leave its jurisdiction?

Ron Webb
Posts: 289
Joined: May 9th, 2009, 11:21 pm

Re: Modern economics

#1348 Postby Ron Webb » April 29th, 2015, 6:56 pm

I'll get back to you later on your latest message, Nick. Meanwhile:
Nick wrote:On a similar matter, I'm not sure if I've mentioned this before, but I think there are alternative ways of selling shares in privatisations to raise more money for the nation. By setting a price, at a level which would ensure a complete sale, usually at a discount, it encourages people to over-apply, in anticipation of their allocation being scaled down.

Instead, the promoter should invite bids for shares at a price of the purchasers choosing. With computer applications only it should not be hard to administer, but maybe it might be required that options are limited to say 5p bands in price, and the shares in 100's.

Example: the government proposes to sell company X with an estimated value of 105p per share. To "get the sale away" to would be normal to set the bid price at a discount, say 95p per share. However, instead of investors making applications at that price, they bid at a price they are prepared to pay. Multiple applications would be permitted. Thus, to take a unit trust as an example, the fund manager might decide that the cheaper the price the more s/he'd like to buy. Say:

1,000 shares at 120p
5,000 at 115p
10,000 at 110p
15,000 at 105p
25,00 at 100p
50,000 at 95p
75,000 at 90p

When all bids are in, the shares are allocated, starting with those who are willing to bid the most. But the price paid would not necessarily be the price bid. Using my example, there may not be enough bidders at 120p to get the shares away, so bidders at 115p would be included. This would continue until all shares are allocated, but the price paid would be at the level where the allocation stopped. Given the tendency for more to be demanded as price falls, it is extremely likely that allocation would need to be scaled down for bids at the ultimate strike price.

Let's suppose the level at which allocations are used up is at 105p. Our UT investor would therefore be allocated 16,000 shares, being the total of bids above the strike price, plus a scaled down allocation of the shares applied for at 105p.

In this way, all shares will be sold, but much more of the profit on the discount will be transferred to the seller, ie the nation, as the shares would be sold at a price within 5p of the market price on the first day of trading. Stags would be disappointed, but who cares about them? :D

Waddya think?

Definitely a cool idea. I'd vote for you. :smile:

Frankly though, I don't think many politicians would be interested because the whole point of selling off public enterprises is to offer good investment opportunities to rich folks who can afford them -- and who, not incidentally, are also those who provide most of the funding for political campaigns. That's what I've seen here in Canada, anyway.

And I mean that as a (mostly) non-partisan comment. All the parties do it, because all the parties need rich donors. IMHO we'll never have politicians who are truly accountable to the average person until we get money out of politics.

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Nick
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Re: Modern economics

#1349 Postby Nick » April 29th, 2015, 9:26 pm

Ron Webb wrote:Definitely a cool idea. I'd vote for you. :smile:


*Nick beams*

(Though, unfortunately, I'm standing (or running!) for anything...)

Frankly though, I don't think many politicians would be interested because the whole point of selling off public enterprises is to offer good investment opportunities to rich folks who can afford them -- and who, not incidentally, are also those who provide most of the funding for political campaigns. That's what I've seen here in Canada, anyway.
Hmmm... Given the small number of people who actually donate, compared to the open goal given by an undervaluation (as it eventually turned out) of a tax-payer owned asset, I'd say that trying to influence donors by somehow giving them a financial inducement is extremely wide of the mark. Why would anyone who responds to such a measly incentive give away large amounts of money?

And I mean that as a (mostly) non-partisan comment. All the parties do it, because all the parties need rich donors. IMHO we'll never have politicians who are truly accountable to the average person until we get money out of politics.
Fair enough, but the problem with that, is that millions of people will find their pockets picked for contributions they don't want to make. Perhaps the only logical conclusion we can draw, is that people tend to want less government, not more, if they have to pay for it.

Ron Webb
Posts: 289
Joined: May 9th, 2009, 11:21 pm

Re: Modern economics

#1350 Postby Ron Webb » April 30th, 2015, 5:28 am

Nick wrote:Steady on, Ron! I don't get much respect on this forum! It'll take a bit of getting used to! :D
Oh, sorry. I'll try to be more abusive in future. :wink:

The suggestion is, that because they have high turnover, they somehow ought to be paying tax, even when none is due, so that other people can spend it. To class that as illegal, without any evidence, is rather nasty and illiberal.
Not because they have high turnover. Because by every indication except tax laws, they appear to have a profitable business. If so, then tax ought to be due; and if the current tax laws say otherwise, then the tax laws need to be revised. Starbucks benefits from the same public services as other businesses and individuals (public roads, public education, police protection, etc.). Why shouldn't they pay for them just like the rest of us?

If, as is also the accusation, they are artificially syphoning profits out of the UK, then that would be illegal already. They have been investigated & found to be in order within normal parameters.
I assume Starbucks is allowed some latitude in setting the transfer price. Perhaps the "normal parameters" are lax enough to allow certain amount of siphoning. I don't know, but when I see a company like Starbucks pleading poverty my suspicions are aroused.

Not quite. I don't know the requirements of the Swiss, but I am pretty sure the Swiss tax authorities would require detailed accounts and computations, just the same as the UK does. It is the freedom for any Tom, Dick or Harry to know the tax affairs of others, which is restricted.
I don't know the requirements of Swiss law either. I only know that Reuters says "Swiss law does not require the unit to publish accounts"; whereas the UK unit, and most other public companies, are legally required at least to provide annual reports. Or maybe the Swiss company is not public. It just seems odd, and a little too convenient, that the profit seems to disappear into a black hole.

As discussed, "moving" profits is not allowable. But until countries all have the same tax laws and rates, the different regimes will tend to impact, for better or worse, on the economic activities undertaken in different countries. If that means that investments occur where they are likely to be most successful, then there's a lesson to us all, isn't there?
Well, see, there's the thing. Who owns these UK franchises that haven't turned a profit in years? Why haven't they pulled their money out and invested it where they would be successful? It just doesn't pass the smell test, as they say.

The number of companies worth billions, in spite of barely making any profits, is larger than you think. This especially true of the more recent internet-based start-ups, not least Amazon, but also Starbucks, Ocardo, Lastminute.dom etc., etc. It is perfectly acceptable for growth to be the best strategy rather than short-term profits.
I'm well aware of that. In fact, I think I own shares in some of them. Like any good investor, I try to minimize my tax liability. I play by the rules; but I'm not blind to the fact that the rules can be unfair, even if sometimes they happen to be unfairly in my favour.

There may be reasons for choosing a small local coffee-house, but I think they would be rather surprised to hear you ask how much tax they paid. I can almost hear the conversation now..... "I demand that your prices are raised, so that you make sufficiently large profits, so that you pay large amounts of corporation tax...." And should we switch from Tesco's to Sainbury's, asTesco's won't be paying any corporation tax this year...?
Nobody is demanding they raise their prices. We just want them to pay their fair share for the services that the UK government provides them. Or if they are really not a profitable business, then maybe they shouldn't be in business.

Ron Webb
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Re: Modern economics

#1351 Postby Ron Webb » April 30th, 2015, 6:10 am

Nick wrote:Hmmm... Given the small number of people who actually donate, compared to the open goal given by an undervaluation (as it eventually turned out) of a tax-payer owned asset, I'd say that trying to influence donors by somehow giving them a financial inducement is extremely wide of the mark. Why would anyone who responds to such a measly incentive give away large amounts of money?
I'm not sure what you mean by "wide of the mark", but I can tell you that it works. I remember when our provincial government privatized our telephone system (mere months after an election during which they assured us that they had no such plans), I saw what was going on and bought a fair number of shares myself. Sure enough, the share value shot up shortly afterwards, and I made a nice profit.

I benefitted slightly, but only because I had some cash on hand to take advantage of the opportunity. I have no doubt that quite a few of the premier's rich friends did much better than me. And some of that benefit would have flowed back into the party's coffers for the next campaign. That's how the game is played.

Fair enough, but the problem with that, is that millions of people will find their pockets picked for contributions they don't want to make. Perhaps the only logical conclusion we can draw, is that people tend to want less government, not more, if they have to pay for it.

Sadly, millions of people don't understand what's going on. Decades of right-wing propaganda has conditioned them to view public enterprise as either a liability instead of an asset, or as a symptom of creeping communism. Worse, most of them don't even vote.

The Manitoba Telephone System was providing Manitobans with excellent services for a reasonable price, while returning a modest profit to the provincial treasury. And we were all owners. Every citizen had an equal share in it. The Conservative government sold it for peanuts, mostly to a small group of rich guys, who no doubt expressed their gratitude financially. Nonetheless, if I recall correctly, the Conservatives were voted out of office in the next election (for a variety of reasons), but it was too late to put the horse back in the barn, so to speak.

But as I said, I don't really intend this as a partisan criticism. The other major party is not much better anymore. They're all in the pockets of rich sponsors now. It's dollars, not votes, that win elections these days. :cross:

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Nick
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Re: Modern economics

#1352 Postby Nick » April 30th, 2015, 9:03 am

Ron Webb wrote:
Nick wrote:Steady on, Ron! I don't get much respect on this forum! It'll take a bit of getting used to! :D
Oh, sorry. I'll try to be more abusive in future. :wink:
:laughter:

The suggestion is, that because they have high turnover, they somehow ought to be paying tax, even when none is due, so that other people can spend it. To class that as illegal, without any evidence, is rather nasty and illiberal.
Not because they have high turnover. Because by every indication except tax laws, they appear to have a profitable business.[/quote] Except their UK accounts, which consistently show losses in the UK. Which, given the rate at which they have been opening new outlets, is not altogether surprising.

If so, then tax ought to be due; and if the current tax laws say otherwise, then the tax laws need to be revised.
But it's not so.
Starbucks benefits from the same public services as other businesses and individuals (public roads, public education, police protection, etc.). Why shouldn't they pay for them just like the rest of us?
For exactly the same reason that we don't expect any other loss-making company to pay tax.

If, as is also the accusation, they are artificially syphoning profits out of the UK, then that would be illegal already. They have been investigated & found to be in order within normal parameters.
I assume Starbucks is allowed some latitude in setting the transfer price. Perhaps the "normal parameters" are lax enough to allow certain amount of siphoning. I don't know, but when I see a company like Starbucks pleading poverty my suspicions are aroused.
You can be suspicious if you want to, but HMRC are able to investigate any suspicions they have and found their tax affairs to be in order.

Not quite. I don't know the requirements of the Swiss, but I am pretty sure the Swiss tax authorities would require detailed accounts and computations, just the same as the UK does. It is the freedom for any Tom, Dick or Harry to know the tax affairs of others, which is restricted.
I don't know the requirements of Swiss law either. I only know that Reuters says "Swiss law does not require the unit to publish accounts"; whereas the UK unit, and most other public companies, are legally required at least to provide annual reports. Or maybe the Swiss company is not public. It just seems odd, and a little too convenient, that the profit seems to disappear into a black hole.
It is the coffee which goes through Switzerland. Given that that accounts for only 4% of their turnover, and coffee does cost, you know, it doesn't sound like much of a black hole to me.

As discussed, "moving" profits is not allowable. But until countries all have the same tax laws and rates, the different regimes will tend to impact, for better or worse, on the economic activities undertaken in different countries. If that means that investments occur where they are likely to be most successful, then there's a lesson to us all, isn't there?
Well, see, there's the thing. Who owns these UK franchises that haven't turned a profit in years? Why haven't they pulled their money out and invested it where they would be successful? It just doesn't pass the smell test, as they say.
For those which are franchised, their profits would not be taxed as part of Starbucks anyway. But the cost of opening stores is high. Opening 700+ is very high! And, as I say, HMRC doesn't have to rely on its nose!

The number of companies worth billions, in spite of barely making any profits, is larger than you think. This especially true of the more recent internet-based start-ups, not least Amazon, but also Starbucks, Ocardo, Lastminute.dom etc., etc. It is perfectly acceptable for growth to be the best strategy rather than short-term profits.
I'm well aware of that. In fact, I think I own shares in some of them. Like any good investor, I try to minimize my tax liability. I play by the rules; but I'm not blind to the fact that the rules can be unfair, even if sometimes they happen to be unfairly in my favour.
Yes, there are times when we accept things as they are. The amount voluntarily paid to HMRC is vanishingly small, so people tend not to correct such things themselves. But we have still not heard what these unfair rules are, which are apparently so convenient for Starbucks.

There may be reasons for choosing a small local coffee-house, but I think they would be rather surprised to hear you ask how much tax they paid. I can almost hear the conversation now..... "I demand that your prices are raised, so that you make sufficiently large profits, so that you pay large amounts of corporation tax...." And should we switch from Tesco's to Sainbury's, asTesco's won't be paying any corporation tax this year...?
Nobody is demanding they raise their prices. We just want them to pay their fair share for the services that the UK government provides them.
So how would you assess what is "fair"? If it is by the amount of profit they make, then they are already paying a fair amount. If it somehow relates to their turnover, then that is the same as extra VAT, which, I think we've agreed, is not paid by the company. How about by capitalisation, perhaps? That would just be an arbitrary wealth tax on the shareholders, whatever their financial status.

Or if they are really not a profitable business, then maybe they shouldn't be in business.
Indeed. That's how capitalism works.

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Nick
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Re: Modern economics

#1353 Postby Nick » April 30th, 2015, 9:24 am

In digging around the web for info on Starbucks, I came across this in the FT from a year ago: Starbucks re-locates European HQ to London


The Treasury’s efforts to attract multinationals to Britain received a boost on Wednesday when Starbucks, the coffee company, announced it was moving its European headquarters from the Netherlands to the UK, where it faced a row over tax avoidance in 2012.

Starbucks is the latest company to move its corporate HQ to Britain, in the wake of reforms of the tax system designed to make it more competitive: publishing company Informa, this week confirmed its plans to move to the UK, and there have been similar decisions from advertisers WPP, UBM, a media group, Aon, an insurance broker, and two oil services companies, Rowan and SeaDrill.
Stella Amiss, a partner at PwC professional services group, said up to 100 companies were looking to move activities out of the Netherlands and elsewhere.
So should Holland be screaming about tax dodging, now?

The world’s largest coffee shop chain said the move, due to be completed by the end of 2014, would mean it would pay more tax in the UK. “The net effect will be largely neutral, and our global effective tax rate will remain about 34 per cent.”
So the UK will benefit, but hey! What's this?! How come their global effective tax rate is 34%? Corporation tax in the UK is 20%. Where's all this tax dodging?
It stressed the primary motivation was to “be better able to oversee the UK market, where more than half our European stores . . . are located”.
Kris Engskov, president of Starbucks Europe, Middle East and Africa, said: “London is the perfect place to grow our European business.”
They aren't even moving for tax reasons.

The UK company, which is making voluntary corporation tax payments, has piled up about £150m of tax losses that would normally be offset against taxable profits before it made tax payments.
But moving its headquarters to Britain will help it become profitable more quickly because it will receive royalty payments for rights such as the brand and trademarks. In the year to last September, these payments to the Dutch holding company totalled €92.1m.
So tax will be paid in the UK. Hardly a tax dodge, is it?

Starbucks, which opened its first European outlets in 1998, has been a target of political and public ire in recent years, after Reuters reported that it paid only £8.6m in UK corporate tax between 1998 and 2012.
In 2012, its executives, along with counterparts from Google and Amazon, were involved in heated exchanges during hearings before MPs on the public accounts committee.
Starbucks said at the time it was “an extremely high taxpayer” globally and acted “to an ethical” as well as a legal standard. It blamed its low corporate tax payments on overexpansion.
As I suggested was the case.

Margaret Hodge, the Labour MP who chairs the public accounts committee and a fierce critic of companies operating in the UK that pay little or no tax, gave a “cautious welcome” to the move but expressed doubt it would make “any great impression” in terms of jobs or tax contributions.
Typical! Don't let facts get in the way of your prejudices, Ms Hodge. Starbucks have created thousands of jobs in the UK, and are now creating a few more, highly paid ones, which will generate tax for the UK. And their royalties will now be taxed in the UK too. If that won't make "any great impression", then the tax loss wasn't that great either. You can't have it both ways!

“We will have to see over time whether this announcement really has any substance or whether it’s primarily about appearance,” she said.
Yes, that's just the way to attract businesses to the UK!!! And how about some shareholder activism to move Stemcor to the UK?

As part of the HQ move, some senior executives will move from Amsterdam to London.
Starbucks also said on Wednesday it would open more than 100 outlets in the UK this year, creating 1,000 jobs on top of the 7,500 it already employs in the country. It also anticipates growth in other European markets.
It will keep its roasting and distribution operations in Amsterdam, where it will continue to employ 200.
We do seem to like coffee, don't we!

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Nick
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Re: Modern economics

#1354 Postby Nick » April 30th, 2015, 10:25 am

A very interesting article, from all the way back in 2008.

You're excused, Lewis. :wink:

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Re: Modern economics

#1355 Postby Ron Webb » April 30th, 2015, 4:12 pm

Nick wrote:You can be suspicious if you want to, but HMRC are able to investigate any suspicions they have and found their tax affairs to be in order.
You seem to be assuming that if they are following the tax laws then by definition that is fair. What we're suggesting is that the current tax laws are not fair, and Starbucks is an illustration of that.

It is the coffee which goes through Switzerland. Given that that accounts for only 4% of their turnover, and coffee does cost, you know, it doesn't sound like much of a black hole to me.
That's a good point, but transfer pricing is not the only issue.

So how would you assess what is "fair"? If it is by the amount of profit they make, then they are already paying a fair amount. If it somehow relates to their turnover, then that is the same as extra VAT, which, I think we've agreed, is not paid by the company. How about by capitalisation, perhaps? That would just be an arbitrary wealth tax on the shareholders, whatever their financial status.
Well, that's the question. What is "fair"? But we can't address that question until we acknowledge that fairness does not necessarily equate to compliance with present tax laws.

While we're at it, we could also ask what is "profit"? I'm no accountant, but I know that there are lots of ways to calculate it and lots of ways to minimize/hide it for tax purposes -- all perfectly legal, of course. You're right, one of the ways is to re-invest it back into the business, and that may be part of Starbucks' strategy. So maybe when a company opens 700+ new stores, that should be considered part of their profit for tax purposes. I'll leave it to smarter people than me to figure out the details. I just know that something needs to be done.

Or if they are really not a profitable business, then maybe they shouldn't be in business.
Indeed. That's how capitalism works.
Exactly, but paying taxes has to be part of the business model. If a company finds itself temporarily on hard times or if a new startup company needs a bit of a tax break, then I'm willing to give it to them. But neither situation applies to Starbucks, as far as I can see.

Bottom line -- There are two major coffee chains in the UK: Starbucks and Costa. Both seem to be quite successful; but only one of them is paying tax, while the other is not. However you slice and dice the numbers, that doesn't seem fair to me.

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Re: Modern economics

#1356 Postby animist » May 1st, 2015, 12:00 am

Nobel Prize winner Paul Krugman's views on austerity:

http://www.theguardian.com/business/ng- ... ?CMP=fb_gu

Ron Webb
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Re: Modern economics

#1357 Postby Ron Webb » May 1st, 2015, 12:22 am

animist wrote:Nobel Prize winner Paul Krugman's views on austerity:

http://www.theguardian.com/business/ng- ... ?CMP=fb_gu

Thanks for the link, animist. I'll definitely give it a read when I get a chance, and I hope others do too. The title is "The Austerity Delusion", and here is the paragraph that states the theme concisely:
It is rare, in the history of economic thought, for debates to get resolved this decisively. The austerian ideology that dominated elite discourse five years ago has collapsed, to the point where hardly anyone still believes it. Hardly anyone, that is, except the coalition that still rules Britain – and most of the British media.

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Re: Modern economics

#1358 Postby lewist » May 1st, 2015, 8:45 am

Ron Webb wrote:
animist wrote:Nobel Prize winner Paul Krugman's views on austerity:

http://www.theguardian.com/business/ng- ... ?CMP=fb_gu

Thanks for the link, animist. I'll definitely give it a read when I get a chance, and I hope others do too. The title is "The Austerity Delusion", and here is the paragraph that states the theme concisely:
It is rare, in the history of economic thought, for debates to get resolved this decisively. The austerian ideology that dominated elite discourse five years ago has collapsed, to the point where hardly anyone still believes it. Hardly anyone, that is, except the coalition that still rules Britain – and most of the British media.
I read that yesterday. It's a good read.
Carpe diem. Savour every moment.

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Re: Modern economics

#1359 Postby thundril » May 2nd, 2015, 4:29 pm

animist wrote:Nobel Prize winner Paul Krugman's views on austerity:

http://www.theguardian.com/business/ng- ... ?CMP=fb_gu

Yes. Thanks from me too, Animist. Have read, downloaded, and added it to ny economics research file.
I am however, prepared for the devastating discovery that Krugman is an economically illiterate buffoon, because he Doesn't Agree With Nick.

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Nick
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Re: Modern economics

#1360 Postby Nick » May 4th, 2015, 11:03 am

Ron Webb wrote:
Nick wrote:You can be suspicious if you want to, but HMRC are able to investigate any suspicions they have and found their tax affairs to be in order.
You seem to be assuming that if they are following the tax laws then by definition that is fair. What we're suggesting is that the current tax laws are not fair, and Starbucks is an illustration of that.
Except that you haven't shown any reason why it is not fair. There is already tax n their turnover, a large chunk of their costs (wages, rent, rates etc } are taxed. Their profits are taxed at 34% globally, but they haven't made taxable profits in the UK. A shred of evidence would be nice...!

It is the coffee which goes through Switzerland. Given that that accounts for only 4% of their turnover, and coffee does cost, you know, it doesn't sound like much of a black hole to me.
That's a good point, but transfer pricing is not the only issue.
OK, gimme some more!

So how would you assess what is "fair"? If it is by the amount of profit they make, then they are already paying a fair amount. If it somehow relates to their turnover, then that is the same as extra VAT, which, I think we've agreed, is not paid by the company. How about by capitalisation, perhaps? That would just be an arbitrary wealth tax on the shareholders, whatever their financial status.
Well, that's the question. What is "fair"? But we can't address that question until we acknowledge that fairness does not necessarily equate to compliance with present tax laws.
OK, so what are you proposing? How would you tax Starbucks to make it "fair"?

While we're at it, we could also ask what is "profit"? I'm no accountant, but I know that there are lots of ways to calculate it and lots of ways to minimize/hide it for tax purposes -- all perfectly legal, of course.
I have an accountancy background. There are over 1,000 specific tax exemptions specifically put into tax legislation in order to influence tax-payers behaviour or to mitigate against the effects of tax which the UK government considers unfair. If a company complies with them, it is hardly their fault, is it?

You're right, one of the ways is to re-invest it back into the business, and that may be part of Starbucks' strategy.
That's a business strategy, which may be right or wrong, not a tax strategy.

So maybe when a company opens 700+ new stores, that should be considered part of their profit for tax purposes.
Huh? So all of a sudden, you are going to allow all currently allowable expenses of trade? Seriously?

I'll leave it to smarter people than me to figure out the details. I just know that something needs to be done.
Why? They are already generating shed-loads of money for the Treasury, even though they are making no taxable profits. What are you trying to do? Shut Starbucks? Maybe you don't like coffee, but what are they "getting away with?"

Or if they are really not a profitable business, then maybe they shouldn't be in business.
Indeed. That's how capitalism works.
Exactly, but paying taxes has to be part of the business model. If a company finds itself temporarily on hard times or if a new startup company needs a bit of a tax break, then I'm willing to give it to them. But neither situation applies to Starbucks, as far as I can see.
But paying tax is part of any business model, because, when you make taxable profits, it's kinda compulsory! As they are not making taxable profits, then either they are on hard times, or they are creating hundreds of new stores. You know, start-ups. Or are you saying that no chain of coffee-shops should have more than one store? In fact, not be a chain at all? How would that help?

Bottom line -- There are two major coffee chains in the UK: Starbucks and Costa. Both seem to be quite successful; but only one of them is paying tax, while the other is not. However you slice and dice the numbers, that doesn't seem fair to me.
They both play by the same rules. They both use Big 4 auditors (Deloittes and Ernst & Young respectively). Their tax computations and audit procedures follow the same rules. But just like Aldi has made a profit this year, and Tesco's a thumping loss, there is no reason why their results should be the same. Fairness really doesn't come into it.

If these accusations are to continue, we really must see some evidence that they are not paying the appropriate amount of tax.
Ron Webb wrote:
Nick wrote:You can be suspicious if you want to, but HMRC are able to investigate any suspicions they have and found their tax affairs to be in order.
You seem to be assuming that if they are following the tax laws then by definition that is fair. What we're suggesting is that the current tax laws are not fair, and Starbucks is an illustration of that.

It is the coffee which goes through Switzerland. Given that that accounts for only 4% of their turnover, and coffee does cost, you know, it doesn't sound like much of a black hole to me.
That's a good point, but transfer pricing is not the only issue.

So how would you assess what is "fair"? If it is by the amount of profit they make, then they are already paying a fair amount. If it somehow relates to their turnover, then that is the same as extra VAT, which, I think we've agreed, is not paid by the company. How about by capitalisation, perhaps? That would just be an arbitrary wealth tax on the shareholders, whatever their financial status.
Well, that's the question. What is "fair"? But we can't address that question until we acknowledge that fairness does not necessarily equate to compliance with present tax laws.

While we're at it, we could also ask what is "profit"? I'm no accountant, but I know that there are lots of ways to calculate it and lots of ways to minimize/hide it for tax purposes -- all perfectly legal, of course. You're right, one of the ways is to re-invest it back into the business, and that may be part of Starbucks' strategy. So maybe when a company opens 700+ new stores, that should be considered part of their profit for tax purposes. I'll leave it to smarter people than me to figure out the details. I just know that something needs to be done.

Or if they are really not a profitable business, then maybe they shouldn't be in business.
Indeed. That's how capitalism works.
Exactly, but paying taxes has to be part of the business model. If a company finds itself temporarily on hard times or if a new startup company needs a bit of a tax break, then I'm willing to give it to them. But neither situation applies to Starbucks, as far as I can see.

Bottom line -- There are two major coffee chains in the UK: Starbucks and Costa. Both seem to be quite successful; but only one of them is paying tax, while the other is not. However you slice and dice the numbers, that doesn't seem fair to me.

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Nick
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Re: Modern economics

#1361 Postby Nick » May 4th, 2015, 11:33 am

thundril wrote:
animist wrote:Nobel Prize winner Paul Krugman's views on austerity:

http://www.theguardian.com/business/ng- ... ?CMP=fb_gu

Yes. Thanks from me too, Animist. Have read, downloaded, and added it to ny economics research file.
I am however, prepared for the devastating discovery that Krugman is an economically illiterate buffoon, because he Doesn't Agree With Nick.

:laughter: He doesn't!


And of course, other Nobel laureates are available. :D


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