Starbucks and country-by-country reporting

The piece about Vince Cable supporting the idea of country-by-country reporting in The Telegraph was curious. In it, Cable basically suggested that Starbucks hadn’t done anything wrong by saying that they’d got “a good story” and are one of “those companies have been traduced in a very unfair way”.

I understand that it’s an attempt at warming business to the idea by suggesting it’s good for them. But it just doesn’t follow. I think that country-by-country reporting would not have helped Starbucks at all.

The key to the story was that the UK accounts (but not actually the profits as adjusted for tax purposes) appeared to be at odds with the group position as stated under US GAAP. Now, I presume that country-by-country reporting would still be under US GAAP for Starbucks as a group because it is US-based.

If it wouldn’t be, does it mean we would have a third set of standards to refer to?

Would it make any difference if research had established the UK company’s “profitability” under US GAAP from the group accounts rather than transcripts of investor calls? I don’t think so.

But once that profitability was established, the researchers then looked at the accounts for the single trading entity in the UK and concluded that the UK accounts were a lie for tax avoidance purposes.

It looks like they didn’t bother looking any further. They found what they were looking for: a story.

And that story shows that it has been easy enough to misunderstand, or perhaps misrepresent, figures from the accounts for a single company in a single country.

So why do we think churning out more data is the answer? With more differences between different countries’ accounting principles and tax rules, will this information help people understand the situation better?

I doubt it. As does Dave Hartnett, it appears. He has this to say in an interview with Tax Journal:

‘But I have misgivings about country by country reporting if the aim of those seeking it is to compare tax paid in one country by a multi-national with what it pays in another. Such crude comparison is of very little value unless the reader has a good understanding of the different tax incentives available in each country and other features of each tax system.’

To my mind, country-by-country reporting appears to add another layer of interpretation on top of the group’s position. It just sounds like a bureaucratic scheme designed to produce more information.

I’ve no real interest or concern over it, in itself. But linking the rationale to companies being able to defend themselves against tax avoidance claims just seems odd to me.

With the information it would provide, you still wouldn’t know what’s going on for tax purposes. For that you still need to see the details of the tax computations and tax return.

Or you’d need to infer what is on them. Which is what failed to happen in the Starbucks story. The people writing the story just assumed this is what they wanted it to be, a case of tax avoidance.

Rather than being an argument in favour of it, I think the Starbucks story shows the inherent concern over country-by-country reporting.

“Information is not knowledge”

Albert Einstein

 

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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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4 Responses to Starbucks and country-by-country reporting

  1. I agree entirely.

    One problem here is that there are two sets of “country-by-country” being bandied around. One is the tax reporting, and the other is accounts reporting. You need both if the tax one is to be at all meaningful -or at least you need some form of country-by-country tax reconciliation.

    The other problem is that some people just won’t believe the reporting. If you get a summary P&L, people will want a detailed one. Then they’ll want breakdowns of individual line items, then they’ll want to drill down into those, and so on. At some point you’re bound to find something that looks odd at first glance, and so all this will do is push the debate into the detail. And then the headlines will just start off “Buried deep in the accounts…”

    You need all the information plus the ability to interpret it, or no information at all is any real good. To my mind that means just making sure HMRC is able to do its job properly, checking that it does so (do they have any sort of peer review or independent audit?), and then believing what it says.

    Why does no-one believe HMRC can do a good job any more? They keep asking me sensible questions: am I the only one?

    • I think that’s right that you’d need both to be able to infer anything at all. Ultimately, you’d end up asking to see the computation and supporting workings to try to establish whether it is right or not.

      I don’t quite support the idea of publishing tax returns and comps, but when I’ve been looking at companies’ tax affairs, that’s what I’d ideally like.

      A new set of calculations seems to be the opposite direction of travel. Rather like Chinese whispers, I’d expect more anomalies would creep in the more you have to manipulate the data.

      It’s interesting your point about the perception of HMRC. I don’t think this tax avoidance debate has painted them in a good light.

      The second I heard Starbucks had their TP policy reviewed by HMRC I thought that should be the end of the story. But it wasn’t. And people then drew the conclusion that Starbucks were “running rings around HMRC” and painted them in a less than flattering light just so that people didn’t have to admit they might have got their accusation a bit wrong.

      • Yes, the argument seems to be: I know Starbucks is avoiding tax; HMRC say they’re not; either I’m wrong or HMRC are; ergo HMRC must be rubbish. It all rather begs the question.

        Unfortunately I can’t see a way for HMRC to be painted in a good light. People will never notice HMRC doing something they agree with, they’ll only ever notice the bits they don’t like.

        It’s like that bit at the PAC where Mitchell and Hodge were asking how many TP people the Big 4 have. It worked out that there are about 200 Big 4 TP specialists and only 50 HMRC ones, so HMRC were bound to lose out. It’s as if negotiations with HMRC take place in a gladiator pit, and the bigger team will win. But most of the work the Big 4 people do is coming up with the answers in the first place, and HMRC can pick and choose which to discuss. HMRC can spend all their time on the enquiries and none at all on the underlying compliance: every time a Big 4 firm spends months doing something and HMRC just spend a day saying OK, that looks fair, the balance swings more towards HMRC.

      • I like the imagery of the gladiator pit…

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