Rebuilding Place in the Urban Space

"A community’s physical form, rather than its land uses, is its most intrinsic and enduring characteristic." [Katz, EPA] This blog focuses on place and placemaking and all that makes it work--historic preservation, urban design, transportation, asset-based community development, arts & cultural development, commercial district revitalization, tourism & destination development, and quality of life advocacy--along with doses of civic engagement and good governance watchdogging.

Sunday, January 27, 2013

Techniques national retail chains use to avoid local taxes are global

In the US, there have been a variety of economic impact studies that find that locally owned retail businesses in turn spend more money locally, invest locally, and have a greater positive economic impact on the local economy when compared to national chains.

Part of this has to do with how the national chains manage their assets to depress profits at the store level.  For example, companies set up a separate company to own the "branding assets" of the firm, e.g., the logo, etc., and each store is charged an annual fee/percentage of profits for the "use" of that logo and other servicemarks of the the corporation, fees for advertising, etc.

(It's like how airlines are "unbundling" fares, so that you pay separate baggage fees, etc.  The way that the regulations are written, separate fees are not subject to federal taxes on airline tickets.  So this means that the taxes generated by airline ticket sales--taxes that are supposed to help pay for building airports, running the air traffic control system, etc.--are falling.)

Anyway, Starbucks (photo right: Reuters) has taken a lot of heat in the UK in particular, for paying relatively little in taxes to the national government, using these and other legal techniques to depress net revenues and profits.  See "Starbucks first to cave in over tax row" and "Starbucks threatens Cameron after 'unfair' tax attacks" from the Telegraph.

From the first article:

Discussions are understood to be focusing on reducing a “royalty fee” of 4.7[%] its UK company pays to a Dutch subsidiary for the rights to use the Starbucks name and coffee recipe.

This policy legally channels money out of the UK, allowing it to reduce its tax bill here. The company also uses a practice called “transfer pricing” to buy coffee beans from a Swiss subsidiary, which also helps to minimise its UK tax bill.

The American company has paid just £8.6m in UK corporation tax since it launched in Britain 14 years ago, despite sales here of £3bn – a tax rate of less than 1[%]. Last year, it paid no corporation tax in the UK, despite revenues of £398m. By contrast, its rival chain, Costa, recorded £377m sales and paid a tax bill of £15m – or 31[%] of profits.

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