Starbucks and Google and others are being roundly criticized for not paying enough tax in the UK. This was the subject of another round of criticism from MPs yesterday ("Tax paid by some global firms in UK ‘an insult'"), and more argument on Newnight last night
Much of the debate focusses on the issue of transfer pricing -- and in particular how much that brand is worth. Is this a Google or Starbucks issue -- or is it in the hands of HMRC?
A transfer price should be chosen which reflects the real value of the goods, services or rights conveyed from abroad to the UK; that should give a sensible and fair result. One can of course hope (or entice) more of the value of those goods or services to be created in the UK.
However, it seems that there is an issue with HMRC setting - or agreeing - that value for the brand and trade mark rights. Perhaps a different approach should be taken. Brand value is (substantially) a reflection of a customer's willingness to buy again – or to encourage their friends to buy again. Some brands clearly have some level of intrinsic value (in the sense that people want it because it is that brand, rather than because the brand signifies a satisfactory product or service) - "I must be seen wearing Channel"; but for others, especially those for lower cost, higher consumption goods, such as Starbucks, the key decision to go back is local customer experience. Now that local customer experience is precisely that – it is generated in the UK, and belongs initially to the provision of those goods or services in the UK.
Therefore supplies in the UK should not be subject to payment of a significant royalty for use of the brand, since the brand value has been built up, and initially resides, entirely locally - most customers rely on the brand because they or their friends in the UK bought something previously in the UK.
Of course typically the licence agreement under which the brand is licensed confers ownership of the rights in the brand, and any goodwill accruing, on the licensor – usually in a foreign (low tax) jurisdiction. But if that is the case, for each purchase of a product in the UK a small piece of value is transferred out of the UK - that piece of goodwill. If that is the case, should not that value stream then attract tax, just as a remittance of dividends to the owner attracts tax? And pehaps that tax could be levied retrospectively? Comments please.