Starbucks agrees to pay more corporation tax

 

Starbucks UK's Kris Engkov: "We are going to do what's required beyond the law"

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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.

'Joke'

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.

Start Quote

Offering to pay some tax if and when it suits you doesn't stop you being a tax dodger”

End Quote UK Uncut

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."

Start Quote

I don't think there will be many people who stop using Google... but the problem for Starbucks is there is a coffee shop on every High Street”

End Quote Richard Bacon Conservative MP

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.

Margaret Hodge, the chair of the Public Accounts Committee, says this is a welcome first step

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.

More protests

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."

Starbucks Amazon Google
Starbucks Amazon UK Google
  • UK sales of £398m in 2011
  • Paid no corporation tax Told PAC was loss-making for 14 of 15 of the last years
  • Employs 8,500 staff in UK
  • UK sales £3.35bn in 2011
  • Stated profit of £74m
  • Paid £1.8m in corporation tax
  • Employs 15,000 in UK
  • Turnover of £396m in the UK in 2011
  • Paid £6m in corporation tax
  • Employs 1,500

Source: PAC, Reuters

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?"

 

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  • rate this
    -1

    Comment number 977.

    @974

    Of course each customer is $ sign - that is what a business, all businesses, see people as. To pretend otherwise is utopian nonsense.

    The majority of society in the UK are not in difficult times. They may seem difficult in light of the post WWII period but compared to days gone by it isn't. People aren't dying of malnutrition on the streets - even the unemployed seem to have PC's and TV's.

  • rate this
    -1

    Comment number 976.

    it doesn't surprise me that US corporations think they can get away with paying no tax.

    It's a reflection of US society.

    Society when it comes to doing business and all smiles and fakeness when relieving someone of their hard earned money . . but the Wild West when it comes to paying your fair share and social responsibility.

    Have a nice day !

    As for UK companies . . they copy the US example.

  • rate this
    0

    Comment number 975.

    £400m turnover in 760 outlets - thats an average of approx £523k per outlet.
    How much do you think it would cost to run a coffee shop for a year.

  • rate this
    -1

    Comment number 974.

    ''Starbucks admitted that the degree of hostility and emotion surrounding the tax issue had "taken us a bit by surprise" - For me this statement sums up large multinational corporations, like Starbucks. They only care about revenue and profit margins above people. Each customer is equivalent to a £/$ sign. Starbucks has no concept of the difficult times that the majority of society are living in.

  • rate this
    +2

    Comment number 973.

    @Robbie - who do you use instead of google for search? I'm looking for a tax paying alternative to them....

  • rate this
    0

    Comment number 972.

    I don't use Starbucks anyway....much prefer Costa Coffee... : )

  • rate this
    +4

    Comment number 971.

    954.
    johnny Well said. A company with such poor results if they are to be believed, would by now have had their banking lines of credit curtailed. In most cases there would have been an investigation regarding their annual returns which at face value would suggest trading whilst insolvent. Starbucks can't have it both ways, they are either bust or being economical with the truth.

  • rate this
    0

    Comment number 970.

    I stopped using Google the majority of my search a while ago, they are consistently damaging to webmasters and the competition of business - they favour pirates, corporations and their big ticket advertisers. I don't shop with Amazon, I buy from independent businesses on line that actually need my custom. I don't drink Starbucks and never have. Support moral business and force a change!

  • rate this
    +3

    Comment number 969.

    Although perhaps immoral - is this really the fault of the corporations - lord knows Starbucks is not the only one - but of a fundamentally broken and unsustainable system?

  • rate this
    +5

    Comment number 968.

    I personally think Starbuck's gesture is pathetic! I also think any governments inactions to close tax loopholes is also pathetic! The only thing being proved here is the same as when the MP's expenses scandal broke out, sorry for being caught! In Starbuck's case it was bad PR, my heart bleeds. If you sell in the UK all monies should be subject to UK tax before it is sent halfway around the world.

  • rate this
    -4

    Comment number 967.

    @959

    I agree there probably wouldn't be such layoffs but the worry is there nonetheless. Why do you think no party as done much on these issues?

    But if one corporation did do it - then all the people whining about tax loopholes would go bonkers saying "look the government can't attract investment".

  • rate this
    +1

    Comment number 966.

    951. Some Lingering Fog
    A public outcry?
    Most people couldn't care less.
    ////////
    As long as "most people" don't buy their coffee there, fine with me.

  • rate this
    +3

    Comment number 965.

    @959
    As far as Posh Boys Inc. are concerned, the politcal backlash would come from the party donors, not the public. There would not be a resulting 15,000 on the dole as you suggest as if they did scale down the UK business (doubtful) other local businesses would take up the slack.

  • rate this
    +6

    Comment number 964.

    Starbucks and other multinational tax avoiding are simply doing what mega rich individuals do, minimising their tax bill through legal loophole scamming. The reason that they are all allowed to do this is that it is the super rich who make the decisions which allow such practices, there is a whole industry dedicated to tax avoidance! Average Joe gets abused while Richy Rich does as he pleases!

  • rate this
    -4

    Comment number 963.

    949.james Allen

    Some of these rules were made for genuine users. Closing a loophole, but leaving the rule open for its intended user is far from simple. If you just put a sledgehammer down, it is likely that many others will be negatively affected. This makes closing loopholes politically difficult. Add to this the EU/ international law, which dictates certain rules that we have to adhere to.

  • rate this
    +7

    Comment number 962.

    The reason the Political System is so knackered is it is fundamentally flawed, Mp's and ministers are only there to get re-elected and make as much money as possible when they are there, and go work in the city afterwards. Tax their future employers, Nae chance. Nuff said, night all

  • rate this
    +4

    Comment number 961.

    As many of you have already commented on the tax issue I will focus on something else interesting. On the same week they've announced to voluntarily pay more tax, they made all staffs to agree new contractual terms (or leave), and cut staff benefits such as half an hour paid lunch and no pay on first day of sick leave.

    Co-incidence?

  • rate this
    +6

    Comment number 960.

    Huge Conglomerates allowed to run riot, drive down wages, create a precariat, destroy independants and are allowed to set their own taxes by SUCCESSIVE governments - Systematic and on purpose.

  • rate this
    -3

    Comment number 959.

    @950

    The political will is not there from all the major parties because say you close a loophole and a company pulls out and puts 15,000 on the dole. What do you think the political backlash from that is?

    Also the law of "unintended consequences" - close what seems a loophole and perhaps create more problems. I don't think large corporations would leave but the risk is a worry for politicians.

  • rate this
    +1

    Comment number 958.

    917, Arcadia, what is that? Nothing to do with me, not heard of it, but then if they are shops then I avoid such things as much as possible.

 

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