All your income are belong to Ritchie

Posted by Christie Malry on October 23, 2012 at 9:02 pm

Ritchie has a go at applying the Meacher/Murphy bill to Starbucks. With terrifying results:

First, given that the business is being very obviously run for profit and is obviously profitable or the chain would not currently be subject to expansion plans the motive for these structures that seem to turn profit into loss cannot be profit: that has already been achieved. So, using the motive test in the Bill these transactions fail: they do not appear profit driven, they appear tax driven. If they really do turn profit into tax loss then their purpose would fail the General Anti-Tax Avoidance Principle Bill. Their purpose must be tax avodiance. In that case the option of ignoring them for the purposes of tax assessment would arise. They could be ignored.


But the royalty would be a prime target for attack: it has no commercial purpose at all. The profit stays within the group, and it cannot be justified as commercial since no one would pay a royalty for thirteen out of fourteen years to make continuing losses. In that case the Bill I have written would be a perfect mechanism for targeting such arrangements that represent what seems to be tax abuse.

Remember, this is a business that has reported losses in its accounts and has reported losses to HMRC. But Ritchie deems that it has somehow turned profit into loss inappropriately, so he can ignore a bunch of costs at will. Note that the only evidence he supplies is that it is "subject to expansion plans". So any business that has a turnaround strategy could find a load of its legitimate costs disallowed by Ritchie for having the audacity to try to survive instead of fail.

The point he makes about the royalty is even more ludicrous. A business might find itself locked into a long term arrangement whereby it must continue to pay amounts to third parties. In these circumstances, the last thing it needs is for Ritchie to deem these costs disallowable merely because they result in losses.

Ritchie considers that the Meacher/Murphy bill can be used to turn any loss-making company into a profitable one that can be taxed. The man has jumped the shark.

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