That we’re not well served by our traditional media is once again shown by the manner the Starbucks and tax story raises its ugly head. A few years back we had that entirely invented – yes, they were lying about it all – story that Starbucks was tax avoiding, evading even. Now we’ve got the mealy mouthed expressing concern at the tax rate being paid. In the process entirely walking over the truth of the story.
So the latest tax-avoidance furore, this time surrounding the coffee chain Starbucks, is particularly hard to stomach. Accounts show that last year its European business in effect paid a UK tax rate of 2.8%. Britain’s corporation tax rate is 19%.
No, that’s dangly bits, great big hairy ones. And that’s in The Times, the newspaper of record. Business Insider is no better:
The European division of Starbucks paid an effective tax rate of 2.8% in the year ending October 2017, after taking into account payment transfers from other parts of the business, the Financial Times reported.
The coffee brand which has faced criticism in the past for the amount of tax it pays revealed that its largest European operation paid just $5.9 million in tax, from UK profits of $213 million.
No, it’s before taking into account payment transfers. And Business Insider might not be considered traditional media but it has the same mindset even if it is only in pixels not print. Even the accounting press is little better:
Recent analysis by the Financial Times shows the company had an effective UK tax rate of 2.8% in the year to the end of October 2017. Its tax bill for 2017 was reduced partly by tax breaks related to employees being paid in shares and there was also a reduction from the ‘tax effect of expenses that are not deductible in determining taxable profit’, according to the company’s accounts for the Europe, Middle East and Africa region.
Yes, but that’s not exactly spelling it out for the readership, is it? The FT is the fount of this nonsense and they really should know better:
Starbucks’ European business paid an effective UK tax rate of just 2.8 per cent in the year to the end of October 2017 after a payment from another part of the group boosted profits.
It’s dangly bits.
So, what’s the first nonsense?
The coffee chain, which has in the past faced vocal criticism of its tax affairs in Britain, has revealed that its largest European operation paid $5.9m of tax in the UK on profits of $213m, down slightly from $219m in the preceding year.
The profit figure was inflated by a $150m dividend from another group entity on which Starbucks had already paid tax.
So, $150 million of it already paid tax elsewhere and is not subject to tax again. Why is that being used as part of the denominator? Well, to big up the story, isn’t it.
Then there’s that bit about “paying staff in shares.” Seriously, people ought to have this oddity of accounting right by now. You know, given how companies are supposed to be spreading the wealth by making the staff part owners?
Roughly enough, you declare your profits after costs including the cost of paying the staff their cash wages. But by a quirk the costs of paying the staff shares as part of their wages comes off after you’ve said what your profits are. But paying the staff in shares is a cost of being in business. Meaning that it’s treated as a cost of tax purposes. So, the tax bill is based upon profits declared minus the cost of paying the staff in shares. And yes, there are companies out there where the cost of those shares is greater than the profit made (Facebook UK comes to mind).
They’re not evading tax, they’re not even avoiding it. They’re obeying tax law exactly as they ought to be. In fact, they’ve even overpaid tax:
The UK entity paid £3.3m of tax on £4.5m of profits — an effective tax rate of 73 per cent. The tax bill increased by £2.1m because the company chose not to use tax breaks on fixed assets.
Get that, Starbucks deliberately overpaid UK corporation tax. And yet still they whine, those campaigners. Probably best to tell them to go boil their heads rather than continuing to be polite about it, eh?