Although this post is more finance related, I can't help but to share this special report from Reuters, which uncovered some interesting facts about Starbucks’s creative accounting methods.
Over the past 3 years, Starbucks's UK subsidiary has reported no profit and paid no income tax despite registering £1.2 billion in sales. As guided by the reporter, tactics used by Starbucks are perfectly legal and are being practiced by multinationals all over the world.
Under the current UK tax regime, companies such as Starbucks are allowed to pay royalties to subsidiaries where country tax are much lower (i.e. Switzerland - as low as 2%). In addition, Her Majesty’s Revenue and Custom (HMRC) also allows companies to deduct intellectual property fees if firms can show that the charges were made at “arm’s length”.
More interestingly, transfer pricing seems to be a popular way for companies to minimize tax bill, by allocating some funds generated in the UK to other subsidiaries in the supply chain, where corporate tax are much lower.
Another way to cut taxes is through inter-company loans, where parent company will charge a high interest rate on its inter-company loan, benefiting both companies in term of taxable income.
For the full post on How Starbucks avoids UK taxes, click HERE.
Happy Reading! =)