HMRC – don’t be pushed around

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From Mr Rod Price.

Sir, John Kay (“Starbucks shows that the tax system must change”, Comment, December 12) states that the arm’s length principle on tax cannot work with reference to Starbucks. I fail to see why. Most obviously, it was rapidly pointed out that Costa Coffee is a similar business of similar size, nicely profitable and paying its tax. Why is this not a suitable arm’s length benchmark just as independent English weavers used to be?

The arm’s length principle could equally be applied to Starbucks’ UK business in other ways. Is paying inflated prices for your coffee beans to a foreign associate an arm’s length transaction? Clearly not. If I were to sell my house to my children for half its market value to avoid inheritance tax, I would be reprimanded. So should Starbucks be. HM Revenue & Customs should ignore any costs over and above the market prices paid by independent businesses. Arm’s length would also suggest that bulk buying would reduce the cost further.

Regarding royalty payments, an arm’s length approach should dictate that the business value of something bears some relation to the profit it can generate. If something generates no profit, it has little if any business value. If Starbucks’ brand and business processes really generate no profits in the UK, its brand must be damaged and its business processes deficient. Therefore, the royalty payments allowed by HMRC should be proportionate to the profit it generates in the UK. No profit means royalty payments valued at zero for tax purposes. Starbucks would then have to balance the trade-off.

It occurs to me that all HMRC needs to do is robustly defend the principle of arm’s length rather than be pushed around by, often contradictory, corporate opinions of what is reasonable. If only it paid as much attention to Starbucks’ arrangements as it would to me selling my house on the cheap, we would all be much better off.

Rod Price, Worcester Park, Surrey, UK

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