So, in the example of Starbucks, you don't feel the US brand brings any value or helps the UK operation in any way at all?

And it leverages that to make profits in the UK and enables any operation to be up, running and making profit faster. It gets a return by making said profits.

So, in the example of Starbucks, you don't feel the US brand brings any value or helps the UK operation in any way at all?

I have already answered that.
It gets the post tax profits in return.

You seemed evasive

Your inwillingness to just give a straight answer became amusing



So if the parent companies branding is of value to the subsiduary, isn't it valid for the parent company to apply a charge on the subsiduary for that?
Granted, you have proposed an alternative which has validity, but isn't it also valid the parent company applies a charge on the subsiduary?

No, it gets the return in profits, anything else is tax evasion.

As FA has said, if said royalties were taxed highly then they wouldn't be moving money around in this way, therefore it isn't a valid "cost" to the UK business.

Why don't you think it's a valid mechanism? The fact that you have proposed an alternative mechanism (although it's got a clear flaw that it doesn't work if the subsiduary doesn't generate a profit, even though the parent has incurred a cost in generating that profile and subsiduary received a benefit) doesn't make the royalty mechinism invalid.

I don't understand your proposal that it's not a valid cost because it wouldn't be done if the tax rules were different.

I put money into my pension and one of the reasons I do that is because it avoids tax. If such payments were taxed highly then I would be less likely to do it. It doesn't mean it's invalid.

No, if Starbucks UK were not owned by Starbucks then Starbucks could levy a payment upon Starbucks UK for use of their brand. But they are, so they are the same brand.

Risk and reward, if the new business makes money they get the profits, it is a simple process that has seen businesses thrive in the past.



Because they are avoiding tax, that is the only reason these "costs" are being cross charged, if there was a tax hit to them there wouldn't be any royalties paid. The example you use isn't a franchise of the US business it is a wholly owned subsidiary.

Also any costs involved with building the US businesses reputation will have (or should have) been accounted for in its US operations tax returns.



Straw man.

Again, you are arguing for the validity of a proposal I haven't denied has validity. What I'm trying to get is your objections (take tax out of it if you need to) to the royalty idea.



Despite out earlier realisation that the parent company provides a benefit to the subsiduary, you still think the only reason the costs are charged is tax? There is no single other reason for the parent company passing costs it incurs to the subsiduary that receives a benefit from those?

If tax wasn't a factor, could you see the validity of a royalty system?




So?

Lets try another approach then. Is it valid for (lets stick to coffee) the Costa parent company to charge their subsiduary for coffee beans and coffee cups? Or does that have to come from a transfer of any profits? If a difference, why?

Those are tangible goods that have a fixed and definable cost that the business needs to operate and are no doubt declared in Whitbread's returns to HMRC.

If the charges to the business represent the cost of said beans and cups then there is no issue, if they are vastly inflated prices then there is accountants slight of hand at work.

What Starbucks are doing is charging the UK arm a fee for reputation and cache of the brand.

So is it just a question of being tangible and intangible?
The costs to Starbucks UK could be quite variable.


How are you going to measure what's "cost" what's inflated to contain valid "value add" and what would be "vastly inflated"?


Correct.

Aye, around 90% of net profits.



There is little if no value to add to tangible goods wholesaled to its retail operation, you would expect the cost to reflect distribution costs but these would normally be saved in the wholesaling operation. A cost price to the retail arm that was well above what you'd expect another supplier to charge would ring bells at HMRC.

The retail operation adds the value by producing the finished beverage in a reasonably comfortable environment, this is where the profits are for Starbucks and any way they can mitigate them and avoid tax they will take.

But we both know why Costa doesn't make these royalty payments to Whitbread, there is no international boarders to get the money over, thus avoiding taxes.

Really? I disagree. There can be significant value add. For example:
What's the difference in manufacturing cost between a plain white mug and a mug with a Starbucks label on? What do you imagine the differnece in value add is or the difference in intra company pricing? Think of a rugby shirt vs plain shirt if that's a better scenario for you.


That's one of their value adds, and nobody has said otherwise, so I don't see why you would state that? You might as well have said they pour coffee into cups.



We seem back where we started: Fairly direct and straightforward questions which you seem quite keen to evade/avoid. Ironic I suppose considering the subject under discussion.

So Osborne thinks that the way out of our current situation is to try and tax the multi-nationals more, the wealth creators that create jobs?

This is nothing more than the politics of envy.

If you tax enterprise it will simply leave.

When Labour were in power they left the rich to get on with creating wealth and hence we had 15 years of continued high growth and low inflation. As Peter Mandleson said "we intensely relaxed about people being stinking rich".

When Osborne has taxed the multi nationals away who will replace their lost tax contributions?

If Starbucks was not called Starbucks would as many people visit the coffee shops? Would people also pay well over the odds for a Latte if it wasn't in a Starbucks?

If we accept that the Starbucks name drives both volume and profitability then surely the owner of the name has a right to charge for the use of it? If costs of driving the brand is borne by HQ surely they have the right to recover those costs?

But is the value attributed fair?

Alternatively, why not say to them that no deduction for royalties paid overseas are a cost of doing business in the UK. Take it or leave it? If they left if we'd have a less homogenous scene.

Now that would be a valid question to ask. Far more valid than the view you (and BG and Him etc) earlier proposed that royalty payments should not be allowed at all.

Well it's only taken umpteen pages to get here but I see we did. The cross charging of royalties has been tax deductible for ages I believe. The issue is how much Starbucks charges its UK arm for the privileged.

They charge a far higher percentage than McDonald'd do for the same thing and so it looks clearly a tax avoidance device to me as opposed to a legitimate tax deductible expense.

The problem could be solved by HMRC saying "Oi, your taking the mick" over the amount.

There is then a separate question as to whether this should be tax deductible at all. Starbucks can still cross charge if it wants but I see no reason why this needs to be tax deductible in the first place.

Either way I think this one is a pretty straightforward tax avoidance mechanism to close off. If Starbucks US stopped taking so much off Starbucks UK the latter would make more money. Theoretically a good thing for the UK business and the fact in practice that isn't the case for Starbucks globally shows how broken the tax system is.

The royalty payments are not fair AS A TAX DODGE because it is all the same firm. If it wants to transfer money to its US parent it is free to do so but the UK operation should not be able to get a tax break. At all.

The lie is given to the whole deal by the resulting fiction, namely that Starbucks UK makes no profit at all to speak of, and so has no corporation tax to pay. Leaving aside that senior Starbucks people frankly bull up how profitable the UK business is for them, isn't it stating the bleeding obvious that if they weren't profitable they wouldn't still be here?

The Reuters investigation found Starbucks had made over £3bn in UK sales since 1998 but had paid less than 1% in corporation tax. It had reported losses in each of the last five years and therefore did not have to pay any corporation tax, yet executives told analysts that the UK business was "successful", "profitable" and they were "very pleased with the performance".

According to the news agency, the firm told investors its European businesses made a $40m (£25m) profit in 2011, but filed accounts that showed a $60m loss.

Now, that is the truth of the matter, and can have no justification at all. No executive could be very pleased with the performance of a successful and profitable business which made losses for five straight years, so those attempting to plait fog can now desist, as you are just wasting your time and ours defending the indefensible.

We could have got there ages ago if we didn't have so many (and another since) declaring that any cross charging is wrong. The question should be "how much?" rather than a statement of "not at all"
Of course, the amount will vary across businesses and may even vary across the product set of their sales.

No, nobody is saying charging royalties is "wrong". The argument is that they can charge whatever royalties they want. But in this case they should not be tax deductible. Not at all.

So you are still taking the line that despite the valid brand value given to the UK subsiduary, and the costs the parent company may incur, and the value to the UK business, the UK business isn't entitled to pay it's parent company and consider that a cost?

To re-visit one of my earlier points, can the UK operation transfer money for buying produce to the parent company and consider that a cost?

Why can't that cost be tax deductable, but the cost of buying (e.g.) coffee beans from the parent company can be?

No posters on this thread have suggested that a business should be able to charge "whatever royalties they want"

What brand value does it give?

If the royalties mean the UK sub. makes a perennial loss, remind me what that "value" is again?