Starbuck balls: they’re becoming insane over this corporate tax dodging
by Tim Worstall | 3rd, July 2013
TWO stories that show quite how insane people are becoming over this corporate tax dodging stuff. Both, of course, from the Mail. The paper that can indeed read the zeitgeit but never quite get the details correct.
The first, about Starbucks:
Starbucks’ UK sales during the year rose 4 per cent to £413.4million – the biggest increase since 2008.
But the company made a loss of £30.4million – after paying £26.5million to overseas subsidiaries in ‘royalty payments’.
It also paid £1.8million to other Starbucks companies as interest payments on loans made between divisions.
Think about the paying the royalty bit for a moment. If you open a coffee shop without the Starbucks brand are you going to get as much trade as if you open one with it? Quite: so the brand has a value and it’s right that that value be paid for. A Liverpool FC replica shirt is worth more than a Bath United one: the brand adds value to it.
But let’s ignore that for a moment and add back in those royalty payments. And also the interest on thise inter-company loans. So we add £28.3 million to their results, adding that to the £30.4 million loss. We’ve still got a £2.1 million loss. No, you do not pay corporation tax on profits that you have not made. There is simply no tax due from this company. So why is everyone whining?
Britain’s privatised water firms have ‘abused’ loopholes in the law to dodge more than £1billion in tax since the election.
A dossier of shame reveals nine water companies, seven of which are foreign owned, have racked up operating profits totalling £10billion since 2010 but paid just £541million in tax.
This equates to a tax rate of just 5.3 per cent. Corporation tax on operating profit is normally 23 per cent.
The abuse is that they’ve borrowed mo9ney to go build reservoirs and repair the pipes. The interest on these borrowings is tax deductible. It has to be, because borrowing money to build reservoires and repair the pipes is what a water company is supposed to do, it’s a cost of doing business. And it makes absolutely no dman difference at all if they borrowed the money from their parent company or from a bank: they’ve still got to pay the interest and that interest is still going to be tax deductible.
Og, and which cretin thinks that tax is charged to operating profits? Bollocks it is: it’s applied to profits after interest and capital allowances. But this is the level we’ve reached in this “debate” about corporate taxation. We’re simply being fed ever more ludicrous stories by ever more uninformed people.
Tim Worstall
Posted: 3rd, July 2013 | In: Money Comment
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