Starbucks Offers To Pay Extra UK Tax
Monday, December 10, 2012
Coffee giant Starbucks is to take the unprecedented step of paying around GBP20m
(USD32.2m) in extra tax to the UK after coming under fire for failing to pay any corporation
tax in the past three years.
Starbucks is just one of several multinational companies to have experienced
mounting hostility in past weeks over its UK tax affairs. In the vanguard has
been parliament's Public Accounts Committee (PAC) which earlier this week issued
a highly critical report on HM Revenue and Customs's (HMRC) ability to deal
with large corporations which generate significant income in the UK but which
appear to pay little or no tax there.
In Starbucks's case, it emerged that while the corporation has around 760 outlets
in the UK, it had paid no corporation tax in the past three years, and a total
of just GBP8.6m in 14 years of trading there. Committee Chairman Margaret Hodge
slammed the use of "aggressive" tax planning as "immoral"
and warned that HMRC appeared to be both lacking determination and demonstrating
leniency in its approach. The department was urged to "get a grip"
on the situation. There have been calls for boycotts of Starbucks coffee, with
Hodge and Chief Secretary to the Treasury Danny Alexander taking part.
Now, in a surprising move, Starbucks has announced that it will make changes
that will result in it paying higher corporation tax in the UK, above what is
currently required by law. Kris Engskov, managing director of Starbucks in the
UK told the London Chamber of Commerce that customers expect the company to
do more when it comes to tax, and that, consequently, "we are going to
take action and do something about it." Engskov explained that Starbucks
is proposing "to pay a significant amount of corporation tax during 2013
and 2014 regardless of whether our company is profitable during these years."
It is Starbucks's alleged unprofitability in the UK that has resulted in its
paying little or no corporation tax, with Engskov remarking that the "UK
remains the most competitive espresso market in the world and we have not performed
to our expectations over the many years we’ve been in business here."
While Starbucks is "still working through some of the calculations,"
Engskov anticipates that the company "could pay or prepay somewhere in
the range of GBP10m in each of the next two years in addition to the variety
of taxes we already pay."
In addition, Starbucks will not claim tax deductions for royalties or payments
related to intercompany charges to 2014. Further, even if Starbucks is unable
to generate substantial profits in the years beyond 2014, it will consider extending
this commitment until it is "paying corporation tax at a material rate."
Stressing the importance of the move, Engskov said: "This is an unprecedented
commitment. It hasn’t been done before. So there is no procedural guideline
for how to do it. As such, I want to clarify something that has been the subject
of inaccurate reports this past week: despite the fact that we have a consistent
and ongoing dialogue with the tax authorities over our business affairs here
in the UK, we have not yet shared this particular proposal with HMRC."
Reacting to the news, Conor Delaney, tax lawyer at Milestone International
Tax Partners, commented: “Strong arm tactics by Margaret Hodge the Public
Accounts Committee appear to be paying off." He predicts that Google and
Amazon will be under pressure to follow suit, but is concerned about the broader
ramifications of the initiative. Delaney warned, "where does this end,
and at what cost to the UK’s reputation as an investment destination for
Chancellor George Osborne announced earlier this week that HMRC will receive
GBP77m in new funding from the Treasury to help it crack down on offshore evasion
and avoidance by wealthy individuals and by multinationals. According to the
Treasury, this should result in an additional GBP2bn per year in tax that it
says would have otherwise gone unpaid. Additional staff and legal support will
be given to HMRC to speed up its work in identifying and challenging multinationals’
transfer pricing arrangements, and to further strengthen HMRC's risk assessment
capability across the large business sector. The aim is to ensure that multinationals
do not shift profits out of the UK and therefore pay the tax due in accordance
with UK tax law.