Chye-Ching Huang, Starbucks’ UK Tax Dodge Highlights Flaws of Territorial Taxation:
U.S.-based multinational corporations that are lobbying Congress to adopt a “territorial” tax system, which would cut their taxes on foreign profits to zero or a very low rate, often note that many other developed countries have such systems. But those countries are a warning, not a model, as a great new analysis by former Joint Tax Committee Chief of Staff (and now University of Southern California Law School Professor) Edward Kleinbard shows.
The United Kingdom has a territorial system, so it generally only taxes profits that a corporation earns in the UK. UK policymakers and citizens have been outraged to learn that Starbucks UK, despite capturing nearly a third of the UK coffee market in 2011, paid no corporate tax in 2011 (or in 12 of the 13 years before that).
How did Starbucks UK do it? By claiming big losses instead of big (taxable) profits.
Read the her full post for additional detail.
Related: Apple was in the news not long ago for (what appears to be) fully legal tax evasion. Bloomberg:
Apple Inc. (AAPL) avoided as much as $9.2 billion in taxes by financing part of a $55 billion stock buyback with debt rather than offshore cash that would have been billed by the U.S. government, Moody’s Investment Services estimates.
Based on current rates, Apple will pay interest of about $308 million a year on the $17 billion bond offering, said Gerald Granovsky, a senior vice president at Moody’s.
“From a pure corporate-finance theory perspective, this was a no-brainer,” Granovsky said.
If the funds had come from Apple’s offshore cash pile of about $100 billion, the Cupertino, California-based iPhone maker would have had to pay a 35 percent tax to repatriate the money, Granovsky said. That means Apple avoided about $9.2 billion in taxes. And since interest payments are tax-deductible, that’s another $100 million a year, Granovsky said.
Very sleazy. I have no comments to add beyond that at the moment. Here’s some related reading that I collected a few weeks ago but never got around to posting: