Despite the Gore Vidal quote in my page header I’d really be interested to know why this simple solution to the Starbucks corporation tax issue wouldn’t work.

This helpful article from Reuters explains three ways in which Starbucks eliminates profits from its UK operations and transfers them to low- or no-tax jurisdictions. Here’s one of them, a ruse involving so-called transfer pricing (the prices charged between different parts of the same company).

Starbucks buys their coffee beans globally through their Swiss company SCTC (Starbucks Coffee Trading Company) based in Lausanne, Switzerland. The coffee is then sold to a roasting company in the Netherlands at an undisclosed price, from where their various national operations including the UK buy the beans at an undislosed (but I’m guessing large) mark-up. According to Reuters over the past three years the Dutch company generated an annual average turnover of 154m euros from which it earned annual average profits of 1.6m euros, or 1%, which implies Starbucks don’t want profits in the Netherlands either. The article goes on

[Starbucks] declined to say what profit the Swiss coffee-buying unit makes, although … it was “moderately” profitable. Swiss law does not require the unit to publish accounts. Corporate profits are taxed at 24 percent in the UK and 25 percent in the Netherlands, whereas profits tied to international trade in commodities like coffee are taxed at rates as low as 5 percent in Switzerland.

If a small business tried to do the same, say through setting up a shell company in the Channel Islands to ‘supply’ all their stock at a large mark-up, HMRC would, I imagine, just refuse to recognise the arrangement and demand that the company’s transfer prices were a fair reflection of costs. Why can’t they do the same with Starbucks?

In fact HMRC have looked at this issue. Reuters says

Starbucks was the subject of a UK customs inquiry in 2009 and 2010 into the company’s transfer pricing practices. This was “resolved without recourse to any further action or penalty”, a Starbucks spokesman said. HMRC declined to comment on the probe.

So my question remains. Why doesn’t HMRC just refuse to accept Starbucks’ transfer pricing practices?