Global giants Starbucks, Google and Amazon have recently been accused by a committee of MPs, of an ‘immoral’ use of complex company structures to avoid paying tax on profits generated in Britain. As the saying goes, “turkeys don’t vote for Christmas” so unless the many loopholes in the tax system are closed and public pressure on such multi-nationals continues, firms will continue this trend of tax avoidance. Given the austerity measures and the fact that everyone is being asked by the Government to tighten their belts, this is extremely unpalatable to the public.
Loss making Starbucks
Despite the fact that Starbucks represents almost one third of the UK coffee shop market, it has paid corporation tax only once in the past 15 years. The worlds biggest coffee chain and the second biggest café-restaurant chain in the world has only paid £8.6m tax on £3bn sales since 1998 McDonald’s by comparison, had a tax bill of over £80m on £3.6bn of UK sales and KFC, the 3rd largest global café-restaurant chain by market cap, incurred taxes of £36m on £1.1bn pounds in UK sales.
One of the key ways in which Starbucks has dodged corporation tax is that on paper, it makes a loss in the UK, so over the past three years, technically the company has reported no profit, and therefore paid no income tax, on sales of £1.2bn.
The company can do this because of a particular scheme in which the UK unit pays a royalty fee amounting to six per cent of total sales for the use of its ‘intellectual property’ to European headquarters in the Netherlands. This results in the UK division being left to report annual “losses”.
Starbucks is now in talks with HMRC and the Treasury about how it can improve its position, "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. As part of this we are looking at our tax approach in the UK” an official statement said. Campaign group UK Uncut said this announcement was "a blatant admission of guilt" that Starbucks had intentionally avoided tax.
Certainly HMRC and the Treasury need to be more assertive towards closing these loopholes that allow companies to hide profits. Margaret Hodge, Chairwoman of the Public Accounts Committee voiced popular opinion, stating “these global companies are making money in the UK. All we are saying is that if you have economic activities in the UK you are making profits and tax is payable on that".
In his Autumn Statement, while George Osborne dangled some carrots in front of British Businesses, he also had a huge stick, promising to clamp down on those not playing by the rules.
Kris Engskov, managing Director of Starbucks UK, announced that they would pay “a significant amount of tax during 2013 and 2014, regardless of whether the company is profitable.” I think this offer to pay corporation tax amounting to £20 million over the next two years has no legal grounding and is just a stunt. The only real answer is to close the tax loopholes that allow Starbucks to get away with this in the first place.