The international coffee chain reported losses in the UK and has paid no corporation tax since 2009 despite sales of £1.2bn, prompting renewed calls for changes to the UK tax system.
Whether it is a flat white, a pumpkin latte or the Christmas-themed red cups, Starbucks has been welcomed into the nation’s heart since opening its doors in the UK in 1998.
But accounts filed by the company since then show that despite £3bn in coffee sales and opening 735 outlets, it paid just £8.6m in corporation tax – perfectly legal under UK law. In the past three years alone, Starbucks paid no tax on sales of £1.2bn because it reported losses.
Its nearest UK rival, Costa, recorded £377m sales last year, compared to Starbucks’s £398m in 2011, and its tax bill came to £15m, or 31 per cent of profits.
What Starbucks is doing may be legal, but what it also shows is that business does not operate on a level playing field in the UK. Richard Murphy, Tax Research UK
The Seattle-based firm is the latest US company to come under scrutiny for making a poor contribution to HM Revenue & Customs (HMRC) after Facebook and Google met similar criticism.
There has also been a growing backlash against those who have used legal tax avoidance schemes, including the comedian Jimmy Carr, who promoted a new Starbucks drinks in March this year [pictured below].
The international coffee chain, which is the second-largest restaurant or cafe chain globally after McDonald’s, says it has paid its “fair share of taxes” in full compliance with UK law and no authority had suggested otherwise.
Starbucks was able to legally pay such a low rate of tax by posting a loss in the UK in the last three years, meaning it was therefore not liable for corporation tax. But according to a four-month investigation by the news agency Reuters, the UK unit was effectively paying money to other parts of the business, such as royalty payments for use of the brand.
Reuters compared the losses filed by the company’s UK unit over the years, with transcripts of conference calls made by the company’s executives telling investors about how profitable the company was.
In the 2007 financial year to end-September, accounts filed by Starbucks’s UK unit showed its tenth consecutive annual loss. But that November, Chief Operating Officer Martin Coles told analysts on the fourth-quarter earnings call that the UK unit’s profits were funding Starbucks’s expansion in other overseas markets.
Although the company is not breaking any laws, Labour MP and tax campaigner Michael Meacher said that the Starbucks’s practice is “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”.
Tax expert Richard Murphy said that the revelations about Starbucks accounts could be a “game changer” in the way tax avoidance is perceived.
“We do have home-grown coffee shops in the UK. A lot of them. And they have to pay their taxes in full here in the UK,” he wrote on his blog, Tax Research UK.
“They can’t make payments to offshore entities for the use of their logos or advice on how to add hot water to coffee just to avoid tax: they have to pay in full on what they earn in this country. What Starbucks is doing may be legal, but what it also shows is that business does not operate on a level playing field in the UK.”
Starbucks pointed out that its overall corporation tax is 31 per cent, compared with an average of 18.5 per cent for multinationals. However when it comes to overseas income, it paid an average of 13 per cent – one of the lowest rates in the consumer goods sector.
In a statement, a Starbucks spokesperson told Channel 4 News that the company is “totally committed” to the UK.
“We will continue to pay our fair share of taxes to the letter of the law in the UK as we always have. This is in keeping with our values as a business, holding ourselves to the highest ethical standards, be it in the way we source our coffee or pay our taxes.”
A Downing Street spokeswoman declined to comment directly on the Starbucks case, but told a regular media briefing in Westminster: “It is important that tax that is due is paid.”
The spokeswoman was asked why Mr Cameron was unwilling to comment on Starbucks’s tax arrangements, when he had publicly branded comedian Jimmy Carr “morally wrong” for using a tax avoidance scheme. She replied: “The prime minister was very clear at the time why he made those particular comments about Jimmy Carr. It was exceptional because of the exceptional media coverage, but we don’t comment on individual cases.”