HMRC restricted deduction for royalty payments to regional HQ, chief financial officer tells the FT
Starbucks ‘adheres to both the letter and spirit of the law’ in every country in which it does business, chief executive officer Howard Schultz has said in a message posted on the group’s UK website.
Shultz said reports about how Starbucks pays tax and reports profit in the UK may have given some people ‘the wrong impression of Starbucks commitment to the UK’. Reuters reported last week, after a four-month investigation, that the US-based coffee chain reported no profit in the UK and paid no corporation tax for the last three years, despite sales of £1.2bn and company officials regularly describing the UK business as ‘profitable’.
The Financial Times reported this morning that the group’s chief financial officer Troy Alstead said the company should have been ‘more vigorous’ in responding to reports that it avoided tax. ‘I have been very angry in the last week not because there is scrutiny, but because it has been so misrepresented and inaccurately reported,’ Alstead said in an interview with the newspaper.
Alstead admitted that a quarter of the group's UK-owned stores are running at a loss, and property costs ‘eat up 25% of UK turnover’.
‘Starbucks has always paid taxes in the UK despite recent suggestions to the contrary,’ Schultz said in a blog post titled ‘Setting the record straight on Starbucks UK taxes and profitability’.
‘In every country where we do business, Starbucks adheres to both the letter and spirit of the law regarding our business practices, and the UK is no exception. In fact, since we entered the UK market in 1998, we have consistently paid all taxes as required. Over the last three years alone, our company has paid more than £160m in various taxes, including national insurance contributions, VAT and business rates.’
Some commentators have criticised large companies for citing payment of taxes other than corporation tax in defending their corporation tax record. However, some press reports may have given the impression that Starbucks pays no UK taxes at all. Earlier this week the Daily Mail reported that ‘the revelation that the coffee shops have paid nothing whatsoever into the UK exchequer for three years achieved the unlikely feat of turning corporation tax into a national obsession’.
Schultz pointed out that UK corporation tax is based on taxable profits. ‘Regrettably, Starbucks has only recorded a profit for UK tax purposes three times in the past 14 years (2006-2008). We will continue to respectfully engage in any dialogue HMRC officials would like to have with us,’ he said.
Accounting rules
The FT noted that Alstead had justified differing accounts of Starbucks’ profitability by ‘pointing to differences in the US and UK accounting rules’.
Schultz’s said US accounting rules stipulate that ‘our taxable income in regional markets, such as the UK, be calculated before accounting for the impact of intercompany license and interest payments’.
In the UK, however, tax law ‘requires that Starbucks and other companies calculate their taxable income after accounting for the impact of intercompany license and interest charges’.
He continued: ‘As a result of the differences in these reporting requirements, there have been past instances when we have communicated to shareholders that the UK has been profitable, albeit a small profit, while at the same time in the UK we had no taxable income to report, and thus no corporate income taxes to pay.
‘Even if we excluded all intercompany license fees and interest payments, our UK margins in our most profitable year were in the mid-single digits, well below our targets and our most profitable markets. Our low profitability in the UK is completely unrelated to any kind of license fees or intercompany payments, it is unfortunately due to a number of historical operating and cost challenges, which we are working hard to change.’
European structure
The group’s European structure had ‘no impact’ on taxable profit in the UK, Schultz said. ‘In fact, the license fees we deduct for UK tax purposes are frequently negotiated and renegotiated between Starbucks and local country tax authorities.’
Alstead had told the FT that HMRC had ‘heavily scrutinised’ a 6% royalty payment to Starbucks’ regional headquarters in the Netherlands, and had restricted the tax deduction to 4.7% of sales since 2003.
HMRC restricted deduction for royalty payments to regional HQ, chief financial officer tells the FT
Starbucks ‘adheres to both the letter and spirit of the law’ in every country in which it does business, chief executive officer Howard Schultz has said in a message posted on the group’s UK website.
Shultz said reports about how Starbucks pays tax and reports profit in the UK may have given some people ‘the wrong impression of Starbucks commitment to the UK’. Reuters reported last week, after a four-month investigation, that the US-based coffee chain reported no profit in the UK and paid no corporation tax for the last three years, despite sales of £1.2bn and company officials regularly describing the UK business as ‘profitable’.
The Financial Times reported this morning that the group’s chief financial officer Troy Alstead said the company should have been ‘more vigorous’ in responding to reports that it avoided tax. ‘I have been very angry in the last week not because there is scrutiny, but because it has been so misrepresented and inaccurately reported,’ Alstead said in an interview with the newspaper.
Alstead admitted that a quarter of the group's UK-owned stores are running at a loss, and property costs ‘eat up 25% of UK turnover’.
‘Starbucks has always paid taxes in the UK despite recent suggestions to the contrary,’ Schultz said in a blog post titled ‘Setting the record straight on Starbucks UK taxes and profitability’.
‘In every country where we do business, Starbucks adheres to both the letter and spirit of the law regarding our business practices, and the UK is no exception. In fact, since we entered the UK market in 1998, we have consistently paid all taxes as required. Over the last three years alone, our company has paid more than £160m in various taxes, including national insurance contributions, VAT and business rates.’
Some commentators have criticised large companies for citing payment of taxes other than corporation tax in defending their corporation tax record. However, some press reports may have given the impression that Starbucks pays no UK taxes at all. Earlier this week the Daily Mail reported that ‘the revelation that the coffee shops have paid nothing whatsoever into the UK exchequer for three years achieved the unlikely feat of turning corporation tax into a national obsession’.
Schultz pointed out that UK corporation tax is based on taxable profits. ‘Regrettably, Starbucks has only recorded a profit for UK tax purposes three times in the past 14 years (2006-2008). We will continue to respectfully engage in any dialogue HMRC officials would like to have with us,’ he said.
Accounting rules
The FT noted that Alstead had justified differing accounts of Starbucks’ profitability by ‘pointing to differences in the US and UK accounting rules’.
Schultz’s said US accounting rules stipulate that ‘our taxable income in regional markets, such as the UK, be calculated before accounting for the impact of intercompany license and interest payments’.
In the UK, however, tax law ‘requires that Starbucks and other companies calculate their taxable income after accounting for the impact of intercompany license and interest charges’.
He continued: ‘As a result of the differences in these reporting requirements, there have been past instances when we have communicated to shareholders that the UK has been profitable, albeit a small profit, while at the same time in the UK we had no taxable income to report, and thus no corporate income taxes to pay.
‘Even if we excluded all intercompany license fees and interest payments, our UK margins in our most profitable year were in the mid-single digits, well below our targets and our most profitable markets. Our low profitability in the UK is completely unrelated to any kind of license fees or intercompany payments, it is unfortunately due to a number of historical operating and cost challenges, which we are working hard to change.’
European structure
The group’s European structure had ‘no impact’ on taxable profit in the UK, Schultz said. ‘In fact, the license fees we deduct for UK tax purposes are frequently negotiated and renegotiated between Starbucks and local country tax authorities.’
Alstead had told the FT that HMRC had ‘heavily scrutinised’ a 6% royalty payment to Starbucks’ regional headquarters in the Netherlands, and had restricted the tax deduction to 4.7% of sales since 2003.
