2 Dec 2012

Starbucks in talks with taxman

Starbucks is reviewing its tax position following talks with HMRC and a public outcry led by UK critics who say the US coffee giant isn’t paying its fair share of tax.

The Seattle-based company is enjoying record profits and its international operations – particularly Britain, Canada and China – bring in “significant” revenue and profits, the company told shareholders in its most recent annual report.

“Our balance sheet has never been stronger and our profits never higher,” Starbucks boasted in its year-end financial statement.

So the British public, MPs and Her Majesty’s Revenue and Customs may be forgiven for asking in unison: Why have Starbucks not paid any income tax since 2009 and not much before that? The answer may be provided by the end of this week.

On Monday, a Public Accounts Committee report is due on the issue of how much tax multinational firms pay in the UK. It is expected to be critical of the current way in which multinational firms use UK tax legislation.

Tax lite

Also tomorrow, the government will announce extra investment in the section of Inland Revenue that tackles tax avoidance by multinational companies, Chancellor George Osborne told the BBC’s Andrew Marr Show on Sunday.

Given the week ahead, Starbucks may have been trying to pre-empt criticism by issuing a statement saying: “Starbucks has complied with all the tax laws in this country but has regretfully not been as profitable as we would have liked.”

“We have listened to feedback from our customers and employees, and understand that to maintain and further build public trust we need to do more,” Starbucks said. “As part of this we are looking at our tax approach in the UK.”

The company statement said more details of its position would be provided by the end of this week.

Coffee talk with HMRC

Starbucks did not immediately respond to Channel 4 News’ request for comment today, nor did it provide an explanation about why it has had three successive years of losses in Britain although sales are at record levels worldwide.

While Starbuck’s accounting may be perfectly legal under UK law, the public dissatisfaction, the spectre of a possible boycott and a few quiet words with HMRC may yet convince Starbucks that it is time to put its money where its froth is – particularly if Starbucks wants to continue relying on international outlets for its growth.

It is a two-way street, however, as Mr Osborne noted today while speaking to the BBC.

“We can’t tackle this by pricing Britain out of the world economy,” Mr Osborne said. ‘If we make our taxes less competitive that will just mean more companies stay out of Britain.”

The daily grind

According to Starbucks’ annual report and figures compiled by Channel 4 News, Starbucks had net revenue of $11.7bn in 2011 from 17,000 coffee shops worldwide.

Some $2.7bn of that $11.7bn revenue came from outside the US. Specifically, two-thirds of international sales came from Britain, Canada and China.

But even though Starbucks 700-plus UK coffee shops are selling gallons of lattes and frappucinos, the company accounts paint a picture of a not-very-profitable British business which has struggled for the 14 years Starbucks has been doing the daily grind in the UK.

And since British corporate tax is a tax on company profit – not sales – Starbucks has paid very little corporate tax to authorities on the £3bn earned in the UK since 1998 – some £8.6m in all – and nothing in the past three years when it lost money. It remains to be seen whether Starbucks tax avoidance, while perfectly legal, will still land it in hot water