Starbucks 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’, Reuters reported yesterday after a four-month investigation.
Under the headline ‘Special Report: How Starbucks avoids UK taxes’, Reuters correspondent Tom Bergin said the ‘apparent contradiction’ arose from tax avoidance and shed light on ‘perfectly legal tactics used by multinationals the world over’.
He reported that Starbucks ‘makes its UK unit and other overseas operations pay a royalty fee … of 6% of total sales … for the use of its “intellectual property” such as its brand and business processes.’ A second reason for the disparity was the allocation of profit among group entities via transfer pricing, and a third was tax relief for interest paid on inter-company loans.
Bergin quoted Troy Alstead, Starbucks' chief financial officer, as saying that the company ‘strictly follows international accounting rules and pays the appropriate level of tax in all the countries where it operates’. A spokeswoman for Starbucks said: ‘We seek to be good taxpayers and to pay our fair share of taxes. We don't write this tax code; we are obligated to comply with it. And we do.’
The US-based group is the world’s second-largest restaurant or cafe chain, Bergin said. ‘Accounts filed by its UK subsidiary show that since it opened in the UK in 1998 the company has racked up over £3bn in coffee sales, and opened 735 outlets but paid only £8.6m in [corporate] income taxes, largely due because the taxman disallowed some deductions.’
Several UK national newspapers, including The Sun, The Guardian, Daily Mail and Daily Telegraph, have followed up the story. The Telegraph’s senior city correspondent Helia Ebrahimi noted that ‘the disparity in [Starbucks’ UK] turnover and what it pays in UK corporation tax has made Starbucks the latest US company to come under the spotlight for its negligible contribution to HMRC’.
International Tax Review asked today on Twitter: ‘Does Starbucks' UK tax avoidance undermine its commitment to [corporate social responsibility]?’ Jim Pickard, political correspondent at the Financial Times, described Bergin’s investigation as ‘exemplary’.
‘There is no suggestion Starbucks has broken any laws,’ Bergin wrote. The group's overall tax rate was 31% last year, he said. ‘But on overseas [non-US] income, Starbucks paid an average tax rate of 13%, one of the lowest in the consumer goods sector.’
Matthew Sinclair, The TaxPayers’ Alliance
Bergin quoted Michael Meacher, the Labour MP whose private members’ bill introducing a general anti-avoidance ‘principle’ is scheduled for a second reading in the House of Commons later this week, as saying that Starbucks' practice was ‘certainly profoundly against the interests of the countries where they operate and is extremely unfair ... they are trying to play the taxman, game him’.
‘It is disgraceful,’ Meacher added. The Sun reported that it had emerged that ‘the coffee king hasn’t paid a bean to the taxman in three years’. It quoted Matthew Sinclair, chief executive of The TaxPayers’ Alliance, as saying: ‘Taxes are too complicated. It means that companies can exploit loopholes to minimise their bills. It also means the public is losing trust in a system that is in need of drastic reform.’
In an interview with Reuters, Richard Murphy, director of Tax Research, said Starbucks was ‘charging itself a royalty for using its own name’. He added: ‘We are seeing profits move from one territory to another one.’
Tax was ‘almost certainly the motive’. Large numbers of multinationals around the world were ‘shifting profit’, he said. ‘If you start from their accounts and work downwards … you find that they should – and do appear to be – making profit in the UK and yet aren’t paying tax here. The government’s missing that point – it’s time they understood that issue.’
The UK and US tax authorities said taxpayer confidentiality prevented them from commenting, Reuters reported. But the Telegraph quoted HMRC as saying that while companies like Starbucks were constantly discussed, a high UK turnover ‘did not mean the company was liable for tax in the UK’.
The Reuters report came days after Labour MP John Mann, who sits on the Treasury Committee, said it was ‘disingenuous and immoral’ for ‘hugely profitable [online] companies not to be paying tax in the countries where they are based and make a profit’. Responding to an analysis of Facebook’s UK business suggesting that the company paid ‘just £238,000’ in corporation tax in the UK last year, Mann said such companies ‘benefit enormously from the country's internet infrastructure but do nothing to fund it’.
On the same day that The Independent ran its report on Facebook, HMRC published a new briefing setting out how multinationals are taxed. HMRC outlined well-established rules that determine whether a company has a taxable presence in the UK, and pointed out that ‘having UK customers is not the same as having a branch in the UK’.
The briefing did not address tax policy, which HMRC regards as a matter for politicians. It did say, however, that globalisation meant multinationals had ‘the opportunity to structure their business to take advantage of beneficial tax rules in different countries’.
Campaigners have argued for years that the tax system gives multinationals an unfair advantage. John Christensen, director of the Tax Justice Network, told a committee of MPs earlier this year that ‘we need to recognise that the current global system is not fit for purpose.’
The Guardian quoted a spokesperson for UK Uncut, the protest group, as saying that the group had Starbucks ‘in its sights’. The Sunday Times reported at the weekend that UK Uncut was ‘planning to target Apple stores’.
Starbucks 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’, Reuters reported yesterday after a four-month investigation.
Under the headline ‘Special Report: How Starbucks avoids UK taxes’, Reuters correspondent Tom Bergin said the ‘apparent contradiction’ arose from tax avoidance and shed light on ‘perfectly legal tactics used by multinationals the world over’.
He reported that Starbucks ‘makes its UK unit and other overseas operations pay a royalty fee … of 6% of total sales … for the use of its “intellectual property” such as its brand and business processes.’ A second reason for the disparity was the allocation of profit among group entities via transfer pricing, and a third was tax relief for interest paid on inter-company loans.
Bergin quoted Troy Alstead, Starbucks' chief financial officer, as saying that the company ‘strictly follows international accounting rules and pays the appropriate level of tax in all the countries where it operates’. A spokeswoman for Starbucks said: ‘We seek to be good taxpayers and to pay our fair share of taxes. We don't write this tax code; we are obligated to comply with it. And we do.’
The US-based group is the world’s second-largest restaurant or cafe chain, Bergin said. ‘Accounts filed by its UK subsidiary show that since it opened in the UK in 1998 the company has racked up over £3bn in coffee sales, and opened 735 outlets but paid only £8.6m in [corporate] income taxes, largely due because the taxman disallowed some deductions.’
Several UK national newspapers, including The Sun, The Guardian, Daily Mail and Daily Telegraph, have followed up the story. The Telegraph’s senior city correspondent Helia Ebrahimi noted that ‘the disparity in [Starbucks’ UK] turnover and what it pays in UK corporation tax has made Starbucks the latest US company to come under the spotlight for its negligible contribution to HMRC’.
International Tax Review asked today on Twitter: ‘Does Starbucks' UK tax avoidance undermine its commitment to [corporate social responsibility]?’ Jim Pickard, political correspondent at the Financial Times, described Bergin’s investigation as ‘exemplary’.
‘There is no suggestion Starbucks has broken any laws,’ Bergin wrote. The group's overall tax rate was 31% last year, he said. ‘But on overseas [non-US] income, Starbucks paid an average tax rate of 13%, one of the lowest in the consumer goods sector.’
Matthew Sinclair, The TaxPayers’ Alliance
Bergin quoted Michael Meacher, the Labour MP whose private members’ bill introducing a general anti-avoidance ‘principle’ is scheduled for a second reading in the House of Commons later this week, as saying that Starbucks' practice was ‘certainly profoundly against the interests of the countries where they operate and is extremely unfair ... they are trying to play the taxman, game him’.
‘It is disgraceful,’ Meacher added. The Sun reported that it had emerged that ‘the coffee king hasn’t paid a bean to the taxman in three years’. It quoted Matthew Sinclair, chief executive of The TaxPayers’ Alliance, as saying: ‘Taxes are too complicated. It means that companies can exploit loopholes to minimise their bills. It also means the public is losing trust in a system that is in need of drastic reform.’
In an interview with Reuters, Richard Murphy, director of Tax Research, said Starbucks was ‘charging itself a royalty for using its own name’. He added: ‘We are seeing profits move from one territory to another one.’
Tax was ‘almost certainly the motive’. Large numbers of multinationals around the world were ‘shifting profit’, he said. ‘If you start from their accounts and work downwards … you find that they should – and do appear to be – making profit in the UK and yet aren’t paying tax here. The government’s missing that point – it’s time they understood that issue.’
The UK and US tax authorities said taxpayer confidentiality prevented them from commenting, Reuters reported. But the Telegraph quoted HMRC as saying that while companies like Starbucks were constantly discussed, a high UK turnover ‘did not mean the company was liable for tax in the UK’.
The Reuters report came days after Labour MP John Mann, who sits on the Treasury Committee, said it was ‘disingenuous and immoral’ for ‘hugely profitable [online] companies not to be paying tax in the countries where they are based and make a profit’. Responding to an analysis of Facebook’s UK business suggesting that the company paid ‘just £238,000’ in corporation tax in the UK last year, Mann said such companies ‘benefit enormously from the country's internet infrastructure but do nothing to fund it’.
On the same day that The Independent ran its report on Facebook, HMRC published a new briefing setting out how multinationals are taxed. HMRC outlined well-established rules that determine whether a company has a taxable presence in the UK, and pointed out that ‘having UK customers is not the same as having a branch in the UK’.
The briefing did not address tax policy, which HMRC regards as a matter for politicians. It did say, however, that globalisation meant multinationals had ‘the opportunity to structure their business to take advantage of beneficial tax rules in different countries’.
Campaigners have argued for years that the tax system gives multinationals an unfair advantage. John Christensen, director of the Tax Justice Network, told a committee of MPs earlier this year that ‘we need to recognise that the current global system is not fit for purpose.’
The Guardian quoted a spokesperson for UK Uncut, the protest group, as saying that the group had Starbucks ‘in its sights’. The Sunday Times reported at the weekend that UK Uncut was ‘planning to target Apple stores’.
