Tax Avoidance

UK corporation tax. Most multi-national businesses manage their global tax footprint by adopting specific transfer pricing policies in respect of intercompany financing, licensing, purchasing and so on. The cornerstone to the transfer pricing rules is the "arm's length principle" for the valuation, for

accounting rules might be changed to accommodate their requirements or for that matter explain what is “fair”.

Indeed, the sole focus on corporation tax hides the true picture of a company’s UK tax footprint. A statement issued by Starbucks on

Milestone is a boutique international tax practice established in Mayfair, London. The team

comprises young, dynamic lawyers who have specialised in international tax throughout their careers. They specialise in International Corporate Transactions, International Investment Funds, Structure Finance, International Real Estate and Private Clients.

Starbucks reported a loss of almost £33 million in the year to 2 October 2011 and consequently has not paid any UK corporation tax.

Miles Dean is a founder of Milestone International Tax Partners, having started his career

tax purposes, of cross-border transactions between associated enterprises. The internationally recognised and accepted standard for transfer pricing and the methodologies to be used in specific situations is provided by the OECD. Unfortunately, politicians and the press do not seem to appreciate that the UK is an OECD Member and has signed up to the OECD Transfer Pricing Guidelines.

But, while aggressive transfer pricing might result in “profit shifting”, tax will generally be paid somewhere and to this end it is not surprising that Starbucks’ global effective tax rate is 31.1%. Compare this to Costa’s effective tax rate of 26.4% and the conclusion must be that Starbucks is not engaged in tax avoidance as reported. Those that call for Starbucks and their like to pay their “fair share” very rarely suggest how the tax and

16 October 2012 puts this into context. Over the past three years, Starbucks has paid £160mn in business rates, national insurance and VAT.

So, let’s return to the question – is all this tax avoidance? The simple answer seems to be ‘no’ despite the soap-box parroting of several MPs. The current tax legislation allows a business to reflect the ‘true’ cost of its operations in its tax accounts. While a multi-national business may have additional scope to manage its tax footprint, this article highlights that on a global effective tax rate basis, all of these business pay close (if not more) than the statutory corporate rate. It’s relevant that this figure does not account for other tax costs such as national insurance or VAT. Seen in this light, arguing that these businesses haven’t paid their ‘fair’ share seems hard to support.

in international tax in 1994. He is the co-author of International Tax Systems and Planning Techniques (Sweet & Maxwell) and The Principles of International Tax Planning (Corpus), as well as numerous academic articles. Miles has a varied client base ranging from owner-managed businesses to international investment funds and real estate businesses. Miles has recently advised on a number of high-profile cross-border infrastructure and real estate transactions. Miles specialises in finding bespoke, commercially workable solutions that create significant tax benefits for individual and corporate clients.

Sally Brown is International Tax Associate at Milestone International Tax Partners

Sally Brown has recently joined Milestone. She is a newly-qualified solicitor in England and Wales and completed her training contract at a City law firm where she did seats in Corporate, Tax, Employment and Real Estate. Sally was awarded the Pump Court Tax Chambers Tax Prize for the highest grade in tax law at King’s College London in 2008.