By Dave Waller Monday, 03 December 2012

Starbucks wakes up and smells the tax bill

Starbucks is reviewing its tax position in the UK. But does it set a dangerous precedent?

Starbucks has announced it’s ‘looking at our tax approach in the UK’, in a bid to ‘maintain and further build public trust’. This may or may not suggest that it’s read in its coffee beans that the Public Accounts Committee's report into the tax habits of such multinationals as itself, Google and Amazon has found evidence of some unsporting behaviour. And here we use the phrase ‘may or may not’ in the sense of ‘calling it a tall cup may or may not just be a way of trying to hide that it’s a small cup’.

You could say that such trouble has been a long time brewing for the Seattle-based coffee chain: according to HMRC it hasn’t paid corporation tax since 2009, and its payments were minimal before that. 'Starbucks has complied with all the tax laws in this country but has regretfully not been as profitable as we would have liked,' read a statement from the chain. It’s hard to wriggle out of tax duties that way: most of the paying public probably hasn’t been as profitable as they’d have liked either, but they’re still coughing up. No surprise then that there have been boycotts of its branches, said public driven to show their anger by foregoing their regular morning pint of warm coffee-scented milk.

There are a couple of full-bodied inconsistencies that have stuck in the collective craw. Troy Alstead, Starbucks' global chief financial officer, claimed that the firm has lost money in the 15 years it has been operating in the UK, except in 2006. At the same time the company was boasting to shareholders of amazing global profits. And when two-thirds of international profits come from Britain, Canada and China the maths doesn’t seem to stack up, especially when Starbucks is such a ubiquitous presence on the UK high street. 

In fact the report suggests the company is fudging the figures by making donations to sister companies in the Netherlands, leaving it officially posting losses in the UK. As British corporate tax is paid on profits not sales, then such clever bean-counting quickly starts to pay off. But this isn’t a climate in which you can sup at the cup of tax avoidance and expect to get away without a burned lip. 

That said, there is an argument against Starbucks suddenly coughing up more: if other multinationals see the likes of Starbucks bowing to pressure from MPs to pay more tax than they’re required to legally, they may have second thoughts about operating here themselves. That's certainly George Osborne's view: he has duly warned against ‘pricing Britain out of the world economy'.

Still, Osborne has pledged £77m a year for two years for more staff at HMRC to pursue tax avoidance by multinationals, with the tax collector coming under pressure from the Commons Public Accounts Committee for being ‘way too lenient’ in its negotiations with such corporations. The Chancellor said the extra investment would help secure an extra £2bn a year in unpaid tax. Which all sounds very positive. Only one snag: if a cup of coffee required a small mortgage when the company wasn't paying tax, how much is a cup going to be now?

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