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Starbucks pays corporation tax in UK for first time in five years Starbucks pays corporation tax in UK for first time in five years
(about 4 hours later)
Starbucks has paid corporation tax in the UK for the first time since 2008, the company has announced. Starbucks, one of the companies exhorted by the prime minister to "wake up and smell the coffee" over tax, has handed over £5m to HM Revenue and Customs – its first payment in five years.
The coffee chain told MPs last year that it made a loss for 14 of its first 15 years in the UK, achieving just a small profit in 2006. But the cash has only gone some way towards assuaging critics, one of whom complained that companies should not be able to "pick and choose" how much tax they wanted to pay.
But under pressure from politicians and the public, it committed to pay £20m in corporation tax over two years, and the exchequer has now received the first £5m. The coffee shop chain said on Sunday it had made the contribution to please its customers and would be paying a second £5m instalment in the last half of the year despite claiming the business overall continued to make a financial loss in Britain.
A Starbucks spokeswoman said: "Six months ago, we felt that our customers should not have to wait for us to become profitable before we started paying UK corporation tax. "Six months ago, we felt that our customers should not have to wait for us to become profitable before we started paying UK corporation tax," the company explained in a written statement.
"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. We have now paid £5m and will pay the remaining £5m later this year. "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. We have now paid £5m and will pay the remaining £5m later this year," Starbucks added.
"We are also undertaking measures to make Starbucks profitable in the UK, such as relocating unprofitable stores to more cost-effective locations, closing them where that is not possible and placing greater reliance on franchised and licensed stores." The move follows a barrage of criticism, including a comment from David Cameron at the World Economic Forum in Davos in January when he attacked low tax payers using the coffee reference – though not specifically naming Starbucks, Google or Amazon .
In a fiery showdown with the Commons' public accounts committee last year, Starbucks said it was "an extremely high taxpayer" globally and acted "to an ethical" as well as a legal standard, despite declaring losses on its UK operation. A spokeswoman for Starbucks declined to say how many customers it had lost following the high profile row which started with demonstrations outside some of the outlets by the campaign group, UK Uncut and ended with scorching criticism from parliament's public accounts committee.
Its global chief financial officer, Troy Alstead, blamed an over-aggressive entry to the UK market which had left it with expensive properties that did not make money. Margaret Hodge, MP and chair of the PAC, said on Sunday she welcomed the first payment by Starbucks but added: "Companies should not be able to pick and choose how much tax they pay. We need a system which ensures that everybody pays a fair share of tax on the profits they gain from the economic activity they undertake."
"It is fundamentally true, everything we are saying and everything we have said historically," he told the committee, and said the firm remained committed to making profits here. The initial row followed revelations that Starbucks had paid £8.6m in corporation tax in its 15 years of trading in Britain, and nothing in the last three years despite overall sales of £3bn.
He conceded that a tax deal struck with the Dutch authorities – which he declined to detail – was "an attractive reason" for basing the coffee company's operations there. Amazon, which had book and CD sales in Britain of £3.35bn in 2011, only reported a "tax expense" of £1.8m while Google's British business paid £6m to the Treasury in 2011 on UK sales of £395m.
A chunk of UK branch profits – 6%, reduced to 4.7% in what one MP called a "cosmetic" deal with HMRC – is transferred there as a dividend, meaning there is no profit to declare. During a period of austerity, the issue has turned into a major political storm with the prime minister making tax avoidance one of the key issues at last week's G8 summit of leading economies at Lough Erne, Northern Ireland.
It also charges a 20% markup on coffee, which it buys via Switzerland where it pays 12% tax. Campaigners claimed that various licensing and supply agreements with Dutch and Swiss arms of the Starbucks empire were being used to allow it to switch profits from Britain to other countries.
"Respectfully, I can assure you there is no tax avoidance here," Alstead told MPs. "We have a global tax rate of 33% around the world. Our tax rate outside the US is 21%. That is higher than most multinationals' global rate. We are an extremely high taxpayer." UK shops are able to buy their coffee from Switzerland at a 20% premium and yet the foreign business is charged corporation tax there of 12% compared with Britain's level of 25%.
He added: "We do not manipulate anything, anywhere." Kris Engskov, managing director of Starbucks UK, responded last December by promising to pay £20m within two years.
Accounts filed by Starbucks UK with Companies House this week will show the British side of the business still not formally profitable. Starbucks is expected to close up to 30 of its shops around the country this year. A similar number were shut last year amid tough competition from Costa and other brands.