Starbucks supposed Tax Avoidance causes conflict

Starbucks supposed Tax Avoidance causes conflict

In the last 14 years, the US coffee giant Starbucks has only paid £8.6 million in corporation tax in the UK. With the recent 4 month investigation by Reuters, it was also found that Starbucks has paid zero corporation tax in the last 3 years, even after generating £398m in sales last year alone. The investigation found Starbucks to have made a profit of over £3bn since 1998, but had only paid 1% in corporation tax in total.

Paradoxically, Starbucks was found to have made a loss in each of the last five years, preventing them from having to pay any corporation tax. However, the company executives told analysts that the UK business was supposedly flourishing and was ‘successful’, ‘profitable’ as well as them being ‘very pleased with the performance’. If the company is making a loss, they do not have to pay corporation tax, but the issue at hand is that investors hear a different version to the story that HM Revenue & Customs hear.

Furthermore, this investigation helped identify payments between companies in order to reduce its taxable income in the UK. Along with the Starbucks UK business, other international operations have to pay a 6% ‘royalty fee’ to other parts of the business for the use of its ‘intellectual property’, for example, the brand, as well as the business processes. Some of the funds generated in the UK must be invested into subsidiaries within the supply chain. Thus, seeing as Starbucks buy their beans for the UK in Switzerland and get them roasted in Amsterdam, tax authorities in these countries require Starbucks to invest some of their UK profits into the roasting and trading units. This helps them avoid paying so much corporation tax in the UK. Critics also pointed out in 2007, if it was not for the 6% royalty fee, Starbucks would have been profitable.

The Financial Times suggested there was another common method in reducing tax bills, by exploiting Britain’s fairly liberal rules on interest deductions, of which Starbucks UK operations paid £2m to group companies last year.

In contrast however, many campaigners along with students from Birmingham are suggesting this is a form of tax avoidance, even though they are technically doing nothing illegal. Some students have also been saying that Starbucks are ‘playing the game’ and the ‘current rules on tax’ need to be addressed by the Government, as little individual based businesses end up paying more tax than large corporate companies. In response to this, Treasury Minister Sajid Javid said – ‘we are looking at all avenues of tax evasion and closing down all avenues for tax avoidance, whether it’s companies or individuals’.

Interestingly, Starbucks response to these accusations were – ‘We have paid and will continue to pay our fair share of taxes in full compliance with all UK tax laws, as we always have. There has been no suggestion by any authority that we are anything but compliant and good tax payers. We do this in a way that is consistent with the values that have guided us since we were founded more than 40 years ago: balancing our need to operate a profitable business with a social conscience.’

In parallel to Starbucks’ response, a tax expert – John Whiting told the BBC that ‘in many ways corporation tax is a bit of a bonus – the company should be paying it if it is making profit’, and even though the company itself may not be paying much corporation tax, ‘the country will still make a good profit out of them’, suggesting it does not matter whether companies such as Starbucks pay corporation tax or not, as long as they provide a profit to the UK.

Written By: Shruti Aggarwal

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