Question

For "Starbucks U.K. Tax Scandal"

Explain related legislation's

in 300 words

Answer 1

Q: For "Starbucks U.K. Tax Scandal". Explain related legislation's in 300 words.

A: It was alleged in a Reuters investigation report that Starbucks had evaded taxes in the UK by repeatedly showing year-on-year losses despite Starbucks claiming to be successful and posting year-on-year annual growth in sales. The global headquarters of Starbucks does not disclose the country wise break up of profits yet the Starbucks CEO had claimed Starbucks in the UK was more successful than its home country the US.

It is also pertinent to differentiate between tax evasion and tax avoidance. Tax evasion is the criminality of deliberately manipulating accounts books to either hide income or to show partial income or under-report income in order to hide the actual income to be able to evade taxes. Tax evasion is illegal and cheating.

While, tax avoidance is the legitimate use of tax savings schemes in order to reduce the overall tax burden or liability. Tax avoidance is not illegal and is allowed in certain tax jurisdictions by those government in order help people save money like investing in a retirement fund.

However, misusing tax rules governing tax avoidance can lead to illegalities such as inter-company loans which is a common strategy employed by multinational corporations like Starbucks to shift their profits to low tax jurisdictions. Another tactic is to allocate some funds generated by the Starbucks UK to other subsidiaries in its supply chain.

The UK tax authority, allows companies to deduct intellectual property fees if firms can show the charges were made at “arm’s length”.

The General Anti-Abuse Rule (GAAR) of the UK is:

- Is to counteract and counter the tax advantage arising from tax arrangements.

- To settle the tax advantage arising from the tax arrangements before counteraction under the GAAR.

A tax advantage is defined under the paragraph 55 of schedule 16 Finance Act (No.2) 2017 and is based on the definition of tax advantage in the GAAR legislation (s208 Finance Act 2013) and occurs when there is a tax advantage as one of the main objectives of in terms of both a commercial perspective and tax.

The definition of when tax arrangements are ‘abusive’ is in paragraph 3(2) of schedule 16 Finance Act (No.2) 2017 and is based on the GAAR ‘double reasonableness test’.