A not so good afterthought on the Starbucks story…

One of the things that stuck in my mind in the Starbucks press narrative was the superficial comparison of different companies that trade in the UK and the royalties they pay.

Starbucks’ royalties were cited at 6%, whereas McDonalds and Burger King’s were around 5% and KFC (part of the Yum! brands) didn’t even pay them.

I don’t know how it was intended, but it seemed to me that KFC was held up as the good guy to compare Starbucks’ evil deeds against.

I have started wondering, and I might do a bit more research on this should I get the chance, whether KFC not paying royalties is more beneficial from a tax perspective. By preventing the income entering the US as trading income (ie royalties) do they let profits arise in lower tax jurisdictions than the US (a federal 35% rate) and “avoid” tax in this way?

So far I haven’t done much digging, just had the idea and looked at the US accounts and the effective rates of tax declared in the US as a starting point. These aren’t really meaningful because you don’t know what is being compared with what.

Contrary to calculations by certain tax enthusiasts in their corporate tax gap estimates, you don’t calculate an average rate by adding up the rates and dividing by the number of rates you’ve just added together. You ignore the weighting of profits across jurisdictions and how the business is distributed globally. So this needs to be taken with a pinch of salt, to say the least.

But as a starting point, it’s as good as any. And, it’s a little bit intriguing…

Effective tax rates US companies

But only a little…

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About Ben Saunders

I'm a Chartered Tax Adviser and a freelance writer. This is my personal blog about, well, mainly taxation. I might put other stuff in. Who knows.
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