There’s nothing quite like a boycott to make a corporation take notice of political weather. And it seems that public outrage at Starbucks’ use of ‘clever accounting methods’ to avoid paying any tax on its UK profits has finally drawn a response.
The chain announced over the weekend that it has paid £5m to HMRC, with the figure rising to £20m by the end of 2014. This £5m chunk its first such payment since 2008. If you find this fact staggering, that’s because it is. Starbucks enjoyed £400m worth of coffee sales in the UK last year alone, not to mention implicit use of public services which provided it with a healthy, educated workforce able to show up for work on time.
Starbucks’ decision to bother paying any corporation tax at all comes partly as a result of a string of rebukes to major corporations by parliament’s Public Accounts Committee. It has launched major attacks on companies such as Google, Amazon, eBay, Facebook and Starbucks for using accounting alchemy to magic away any tax liability for profits resulting from business activity in the UK.
The usual tactic is to structure the company so that UK businesses are subsidiaries of a parent company based in a tax haven. The ‘child’ companies are then forced to pay ‘royalties’ to the parent company that are so high that they can declare a ‘loss’, meaning no corporation tax is owed in the UK. Total company profit is therefore all funnelled through the tax haven.
Starbucks says ‘we listened to our customers in December and so decided to forgo certain deductions which would make us liable to pay £10m in corporation tax this year and a further £10m in 2014.’ How honorable. But the fact that a company can ‘decide’ anything about its tax situation does make a joke of our tax system. Starbucks’ new payments are, after all, voluntary.
Still, it released a slightly mealy-mouthed statement, saying: ‘[We] felt that our customers should not have to wait for us to become profitable before we started paying UK corporation tax’.
It all sounds very lovely and CSR-esque, but is it just a bit of PR guff? During the last 14 years, Starbucks has paid a sum total of £8.6m corporation tax in the UK. £20m is admittedly quite a lot more than that, but is it really much closer to reflecting the 'real' extent of the firm's activities in the UK? Answers on a postcard, please...