There’s a definite joy to this recent EU announcement that they’re going to look into the tax affairs of the coffee shop chain, Starbucks. For as we all recall there was something of a vociferous campaign in the UK about this very matter. All sorts of things were said about the company. That it was appalling that it had been here for years, paid almost no corporation tax. That it paid royalties off to a Dutch company, that it paid a premium on the coffee beans that it bought from Switzerland. The campaign was actually so vociferous that the company voluntarily offered to pay tax that it didn’t actually owe to make the howling mob go away.
So it might be thought a little odd to welcome this investigation: au contraire.
For what is it that the EU has found that can be investigated?
the individual ruling issued by the Dutch tax authorities on the calculation of the taxable basis in the Netherlands for manufacturing activities of Starbucks Manufacturing EMEA BV
That is, having looked at all of those allegations, all of those accusations, the EU has found absolutely nothing at all about the tax affairs of Starbucks UK that is even slightly out of the ordinary. There’s not even anything for them to investigate!
There’s more detail here too: it’s actually illegal for the UK to try and tax those royalties flowing to Holland. Yes, under EU law that would be illegal. And under standard transfer pricing rules it would also be illegal for Starbucks not to pay a margin on those coffee beans it buys from Switzerland. Because that would be sucking taxable profit (if there is any profit!) out of Switzerland and you’re just not supposed to do that, are you?
We’ll obviously get all of the usual suspects crowing about how they were right. But do recall, point out to them even, this basic point. The EU has looked at the European tax affairs of Starbucks and they’ve found nothing about the UK part of it to even investigate. That is, all of the allegations that were made here in the UK have turned out to be entirely wrong.
Given the source of those allegations this isn’t all that much of a surprise but we should keep pointing it out.