Re: Three cheers for the Chancellor : Tue Nov 06, 2012 9:27 pm  

Richie wrote:

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?

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.

Re: Three cheers for the Chancellor : Tue Nov 06, 2012 9:33 pm  

Big Graeme wrote:

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.

Re: Three cheers for the Chancellor : Tue Nov 06, 2012 9:50 pm  

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.

Re: Three cheers for the Chancellor : Tue Nov 06, 2012 9:52 pm  

Richie wrote:

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.

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.

Richie wrote:

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.

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.

Richie wrote:

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.

Straw man.

Re: Three cheers for the Chancellor : Tue Nov 06, 2012 9:57 pm  

Big Graeme wrote:

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.

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.

Big Graeme wrote:

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.

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?

Big Graeme wrote:

Straw man.

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?

Re: Three cheers for the Chancellor : Tue Nov 06, 2012 10:11 pm  

Richie wrote:

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.

Re: Three cheers for the Chancellor : Tue Nov 06, 2012 10:14 pm  

Big Graeme wrote:

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.

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

Big Graeme wrote:

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.

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

Big Graeme wrote:

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

Correct.

Re: Three cheers for the Chancellor : Tue Nov 06, 2012 10:27 pm  

Richie wrote:

The costs to Starbucks UK could be quite variable.

Aye, around 90% of net profits.

Richie wrote:

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

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.

Re: Three cheers for the Chancellor : Tue Nov 06, 2012 10:38 pm  

Big Graeme wrote:

Aye, around 90% of net profits.

Big Graeme wrote:

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.

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.

Big Graeme wrote:

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.

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.

Big Graeme wrote:

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.

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.

Re: Three cheers for the Chancellor : Tue Nov 06, 2012 11:23 pm  

Dally wrote:

George is reported in this morning Times as having started to build an international consesus on mutli-national tax avoidance. Something Labour weren't interested in doing in 17 years.

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?