Starbucks agrees to pay more corporation tax

 

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

Related Stories

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?"

 

More on This Story

Related Stories

The BBC is not responsible for the content of external Internet sites

Comments

This entry is now closed for comments

Jump to comments pagination
 
  • rate this
    +2

    Comment number 97.

    Meh.

    £20m voluntary contribution is neither here nor there in the grand scheme of things. These companies are just three examples of a model used all over the place. What's needed is a change in the rules that allow this tax avoidance/minimisation scheme in the first place, such that the tax scenario is both effective and a level field for domestic and international business.

  • rate this
    0

    Comment number 96.

    So, maybe I'll decide to give the tax office half the tax I should next month and might consider give them more the month after, or I might decide to give them less...

    Oh... wait.... I can't. It's not like I have a choice.

  • rate this
    +3

    Comment number 95.

    How will Starbucks turn voluntarily from making a loss to making a profit?

    Will they now get rid of loads of Britsh employess that have been drinking the profits?

    If that company can suddenly turn from loss to profit, it should flog off its coffee business and sell its ideas to other UK businesses.

  • rate this
    +226

    Comment number 94.

    Sounds like they've set their own tax rate.

    I wish I could do that.

  • rate this
    +2

    Comment number 93.

    22.Eat the Path
    "So Starbucks pays an arbitrary, small sum and tax law is still broken."

    Which tax law is broken? This all about tax AVOIDANCE (perfectly legal, and very sensible; we all do it when we can) not tax EVASION (illegal and totally reprehensible).

  • rate this
    +2

    Comment number 92.

    Why does your article not state how much profit they made in the UK, rather than their turnover. I can't judge if 10 million a year is reasonable or not!
    Do a bit of journalism and dig up the facts please not this half-story.

  • rate this
    +1

    Comment number 91.

    We should all patronise our own, UK based, coffee & tea outlets on the high street. However, some of the other foreign based companies avoiding tax are harder to not use but to avoid patronising Starbucks, in my opinion, is a doddle because their coffee is thin and not at all nice.

  • rate this
    +1

    Comment number 90.

    It interesting how we all get in an uproar over taxes - who pays who doesn't!!! Lets just suppose business paid less or no taxes...would this give more incentive for growth and hiring? Would more jobs be created? Would there be less unemployed? Just wondering....

    If more people are employed, less benefits are paid out and more taxes comes in. Right!!

  • rate this
    +1

    Comment number 89.

    Regardless of whether the company is profitable? Is there some fiddling going on?

  • rate this
    -16

    Comment number 88.

    @19.bounce bounce bounce

    "I'm boycotting Starbucks."

    Good for you. I'll be trying to use them more to thank them for complying with their legal obligations to their shareholders.

    Will you be boycotting Google and Amazon as well?

    I look forward to seeing how Amazon does over xmas in the UK, my suspicion is that they will do well, proving that the British people as a whole do not disapprove.

  • rate this
    +4

    Comment number 87.

    "Starbucks agrees to pay more corporation tax"

    That's good of them. Hadn't realised it was optional.

  • rate this
    +2

    Comment number 86.

    @37 There is also Employer paid natioanl Insurances contributions ontop of those paid by the employee. Also Business rates and of course the tax on the power they use and I assume they also have Insurances which incur Insurance Premium tax.
    Its the EU legislation which allows this, there really isn't much HMRC or the government can do

  • rate this
    0

    Comment number 85.

    Lets be honest this is a "here you go and a pat on the head" gesture. If the government put in half as much effort into collecting tax we would not have half as much debt. It's too little too late, another American company abusing our country.

  • rate this
    +2

    Comment number 84.

    So Starbucks coffee prices are going to go up, well done!

  • rate this
    +55

    Comment number 83.

    This is most likely a fraction of what they should be paying and also this is the first time they have paid so much has already been avoided.
    I am certain though that the gov't will act as if they have won a major victory for the public and have acted solely in our interest.
    In reality they have got starbucks to cough up small change as a cover.

  • rate this
    +4

    Comment number 82.

    If Starbucks have not illegally manipulated their overseas intercompany charges then the directors cannot voluntarily agree to pay more tax. If they have manipulated the figures HMRC must go after them for previous year's underpaid tax.

  • rate this
    +2

    Comment number 81.

    #66: The correct comparison would be to send a cheque to HMRC *in addition to* the tax you're legally required to pay. That's what Starbucks is doing, having determined (I assume for PR/marketing reasons) that it is to their advantage to pay more tax than the law requires.

  • rate this
    +1

    Comment number 80.

    pity MPs of all parties couldnt agree to return all benefits they squeeze from the public purse. multi millionaires getting benefits ie any type of allowances. they should be means tested. how is it allowed????

  • rate this
    +14

    Comment number 79.

    We still have widespread condemnation of these companies for minimizing their tax payments within the rules.

    If they are doing wrong, then the fault lies with the rules - i.e. HMRC.

    I personally find any politician criticising any person or company on "moral" grounds to be laughable!

  • rate this
    +3

    Comment number 78.

    Didn't realise tax was a matter of choice. Have Starbucks actually done anything illegal? If not, then this is a donation, which is very kind of them. If we make the UK a charity, presumably Starbucks will get tax relief on their donation?

    What a sad country this is, reduced to begging or bullying by the lynch mob. It's all everybody else's fault, especially the big blue corporation meanies.

 

Page 45 of 49

 

More Business stories

RSS

Features

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.