Published on 6 Dec 2012 Sections

Starbucks: ‘We’ll pay extra tax’

Starbucks pledges to pay around £20m in corporation tax over the next two years after being accused of “immorally” slashing its tax bill.

The coffee giant’s UK managing director Kris Engskov told the London Chamber of Commerce that changes to its tax arrangements will see the firm pay above what is required by law.

The chain, along with Google and Amazon, was accused of minimising UK tax bills in a damning report by the Public Accounts Committee.

MPs said Starbucks’ statements about its profits were “difficult to believe” and “inconsistent” with claims the company was making about its success to shareholders.

Starbucks told the watchdog it had made a loss for 14 of the 15 years it has operated in the UK, making just a small profit in 2006.

Those results meant that the company paid just £8.6m in corporation tax in 14 years of trading in Britain and nothing in the last three years.

The firm cut its tax liabilitites legally by paying fees to other parts of its global business, such as royalty payments for use of the brand.

Rival coffee chain Costa recorded £377m sales last year compared with Starbucks’ £398m, but its tax bill came to £15m.

The emotion of the issue has taken us a bit by surprise. Kris Engskov

Starbucks has now said it will not claim tax deductions for royalties or payments related to its intercompany charges in 2013 and 2014.

The company, which has more than 700 outlets in the UK, made the announcement amid increased public pressure on multinational corporations over their tax affairs.

Mr Engskov said Starbucks had always organised its tax affairs “according to the letter of the law” and added “the emotion of the issue has taken us a bit by surprise”.

He added: “These decisions are the right things for us to do. We’ve heard that loud and clear from our customers. And today, we’re taking the actions necessary to pay more corporation tax in the UK.”

UK Uncut said it was pressing ahead with protests at 40 Starbucks stores across the country on Saturday.

‘Naming and shaming works’

On Wednesday the chairman of the Public Accounts Committee, Margaret Hodge, challenged the prime minister in parliament, saying: “Clearly, naming and shaming works.

“Surely it is time to stop companies engaged in tax avoidance from hiding behind taxpayer confidentiality and will you now commit to publishing the names of those companies found by HMRC to have avoided paying their fair share of tax?”

In a reference to his own comments about tax avoidance schemes used by the comedian Jimmy Carr, Mr Cameron replied: “I certainly am committed to doing all we can to look at all the options to make sure companies pay their taxes properly and I agree with what you said about public and even some political pressure.

“On some occasions I myself have made one or two remarks about this that were seen as rather controversial.”

Committee turns spotlight on banks and lawyers

At the latest Public Accounts Committee hearing on Thursday, Mrs Hodge said it was “outrageous” than senior staff at Her Majesty’s Revenue & Customs could not guarantee that big lenders, including taxpayer-owned RBS, were not helping tax dodgers.

Jim Harra, director general, business tax at HMRC, said that banks had “historically” promoted tax avoidance but 236 lenders, including 15 of the biggest banks, had signed up to an anti-avoidance code of practice in 2009.

But he said there were question marks over how careful some banks were to avoid lending money to people who might use the loan as part of a tax avoidance structure.

Read More: FactCheck - why Danny Alexander won't cure our tax haven habit.

Mrs Hodge also accused some QCs of “prostituting themselves” by offering the companies that invent tax avoidance schemes an opinion on the legality of such schemes which is later used to help market them.

Labour MP Austin Mitchell said the “elephant in the room” was the involvement of the Big Four accountancy firms – PwC, Deloitte, KPMG and Ernst & Young – in promoting tax avoidance schemes.

HMRC chief executive Lin Homer said that fewer than 10 per cent of tax avoidance schemes closed by the tax authority are run by the Big Four or by leading law firms – down from about 25 per cent in 2004.

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