Global Policy Forum

Starbucks to 'Start Paying' UK Tax

Reuters found that Starbucks reported 13 years of losses in the UK while it told investors that the unit was among the best performing of its overseas operations. Despite controlling almost one-third of the UK coffee-shop market, Starbucks paid tax only once in the past 15 years. The US-based global coffeehouse announced that it will make changes to its UK tax practices. Starbucks however is only one of many multinational companies that are avoiding taxes overseas while local businesses pay their fair share.

December 3, 2012

US Coffee giant Starbucks has said it is considering changes to its UK tax practices, which allowed it to make billions in revenue while paying little in income taxes.

A Reuters news agency examination of Starbucks accounts published in October showed the company had reported 13 years of losses at its UK unit, even as it told investors the operation was profitable and among the best performing of its overseas markets.

The announcement comes after a report published on Monday criticised how multinational companies were avoiding tax in the UK.

The Public Accounts Committee, which published the report, said the HM Revenue and Customs (HMRC) needed to be "more aggressive and assertive in confronting corporate tax avoidance".

The report said the level of tax taken from multinational firms with large UK operations was "outrageous and an insult to British businesses and individuals who pay their fair share".

Starbucks, for example, sold nearly £643 million worth of goods in the UK last year, but paid no corporation tax at all, because it transferred some of the money to a sister company in the Netherlands in the form of royalty payments, bought its coffee beans from Switzerland and paid high interest rates to borrow money from other parts of the business.

The Public Accounts Committee's report also criticised Amazon and Google, neither of which has paid much corporation tax.

'Reconsidering tax arrangements'

Overall Starbucks has paid no corporation tax over last three years for which figures are available and has only paid$13.83 million pounds income tax since 1998, despite racking up $4.8bn of sales.

Despite having almost one-third of the UK coffee shop market, Starbucks has paid corporation tax only once in the past 15 years.

Corporation tax is paid by foreign companies on profits made in the UK.

The revelations led to calls for a boycott of the store and protests at its branches, and the company's Chief Financial Officer Troy Alstead was called to give evidence to a parliamentary committee.

Starbucks repeated on Sunday that it had always complied with British tax laws and blamed its low tax payments on a tough operating environment in the UK.

However, a spokeswoman added in an emailed statement that the public mood had caused the company to reconsider its tax arrangements, which include intercompany royalty and interest payments that reduce the UK unit's taxable profit.

"We have listened to feedback from our customers and employees, and understand that to maintain and further build public trust we need to do more," she said.

The company, the largest coffee chain in the world, with a market value of $39bn, said it would release more details later this week.

As a reponse the UK finance ministry has as announced it will provide HMRC with $123 million of new money to help it track down wealthy individuals and companies who tried to avoid paying tax. 

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