Starbucks agrees to pay more corporation tax
- 6 December 2012
- From the section Business
Coffee chain Starbucks has agreed to pay more UK corporation tax, after a public outcry over how little it pays.
Kris Engskov, managing director of Starbucks UK, announced that the company would pay "a significant amount of tax during 2013 and 2014, regardless of whether the company is profitable".
One tax expert described the move as "unprecedented".
HM Revenue and Customs reacted by saying that corporation tax "is not a voluntary tax".
"The public expects businesses to pay their fair share," the tax authorities added, "and HMRC will challenge, through the courts if necessary, any structures or tax payments that do not comply with the UK tax law."
But Amazon and Google, also under fire for paying little UK tax, held firm.
The extra tax could amount to £20m over the next two years, Mr Engskov said.
Bill Dodwell, head of tax policy at the accountants Deloitte, told the BBC that he suspected the figure was a "sensible number taking account of the scale of the business and their history of past losses".
"This is an unprecedented move for a company to announce this sort of change," he said.
Starbucks' announcement comes after much public anger over the revelation of how little corporation tax it pays in the UK, with some people saying they would boycott its outlets.
The company has paid just £8.6m in corporation tax in its 14 years of trading in the UK, and nothing in the last three years, despite UK sales of nearly £400m in 2011.
Starbucks has reported a taxable profit only once in its 15 years of operating in the UK, often reporting losses.
"It is extraordinary," Stephen Williams, Treasury spokesman for the Liberal Democrats, told the BBC. "People have been joking that some of these multinationals seem to think that paying tax is voluntary. Well Starbucks have just confirmed the joke really.
"Tax is something that is a legal obligation that you should pay according to the tax rules of a particular country. It's not a charitable donation in order to gain sort of brand value. But that seems to be what Starbucks are doing."
Conservative MP Richard Bacon, who is a member of the Public Accounts Committee, expressed surprise at the move.
"They have recognised the public outrage at the fact that a company as large as Starbucks would... not be paying any corporation tax.
"They have realised that it is a PR problem and it is a PR response. It is nice for the exchequer to have a bit more money, but it is not a long-term solution to the problem that we face."
Starbucks admitted that the degree of hostility and emotion surrounding the tax issue had "taken us a bit by surprise" and that the move was an attempt to rebuild trust with its customers.
"Since we started doing business here, we have always organised our tax affairs according to the letter of the law," said Mr Engskov.
"[But] with the backdrop of these difficult times, in the area of tax, our customers clearly expect us to do more," he said.
Mr Engskov added that the company had found it difficult to make profits in the UK, which has "the most competitive espresso market in the world", despite "two million customers visiting us each week in hundreds of stores across the UK".
The extra tax payments will be funded by not claiming "tax deductions for royalties or payments related to our intercompany charges", Mr Engskov said.
Mr Dodwell said he thought the coffee chain would not claim some of the deductions they may otherwise have been allowed to claim.
"We don't know the details - that will be between the company and HM Revenue and Customs," he said.
UK Uncut, a group that protests against corporate tax avoidance in the UK, said that Starbucks' announcement was not enough and that 40 "actions" would take place in Starbucks stores up and down the country.
"There's no money yet, and hollow promises on press releases don't fund women's refuges or child benefits," the group said. "Offering to pay some tax if and when it suits you doesn't stop you being a tax dodger. Today's announcement is just a desperate attempt to deflect public pressure.
"The £10m that Starbucks has estimated it may end up paying is £5m less than that paid by their nearest competitor Costa coffee."
Starbucks has 760 outlets across the UK and says it contributes "£300m to the UK economy" each year. Rival Costa has 1,479 coffee shops.
In a statement, Amazon said: "Amazon pays all applicable taxes in every jurisdiction that it operates within."
And Google said: "We comply with all the tax rules in the UK. We make a substantial contribution to the UK economy through local, payroll and corporate taxes."
Mr Bacon said that Starbucks' move will likely have an effect on its fellow US giants.
"I suspect what companies do is when they see their name in the public lights and they don't like it and then they take action," the MP said. "I don't think there will be many people who stop using Google... and probably for their Christmas shopping lots of people will still use Amazon.
"But the problem for Starbucks is there is a coffee shop on every High Street."
Companies pay corporation tax on any profit they make in the UK, not their revenue or takings. Hence, allegations that multinationals move money to other countries to reduce how much tax they pay in the UK.
John Whiting, director at the Chartered Institute of Taxation, told the BBC that Starbucks was trying to protect its image.
"I think what it demonstrates is that companies big or small do care about their reputation," he said.
"I mean, you can say Starbucks depends on its coffee....but a real key thing they depend on, is what people think about them, the trust. Do they like the image they portray?"