Starbucks offers to pay £10m more UK tax
6 Dec 2012
Starbucks has caved in to public pressure and announced that it will pay an extra £10m a year in corporation tax in the UK until it turns a profit.
Since it opened in the UK in 1998 the company has racked up over £3bn in coffee sales, and opened 735 outlets but paid only £8.6m in income taxes and commands close to a third of coffee sales in the UK.
Kris Engskov, managing director of Starbucks UK, said in a speech to the London Chamber of Commerce on Thursday: 'There is no doubt that tax has become an important subject of debate over the past several weeks and I think it's important to share that the emotion of the issue has taken us a bit by surprise.
'Since we started doing business here, we have always organised our tax affairs according to the letter of the law - always.
'We have used existing and agreed-upon measures to pay what is expected of us, but not more - just as most companies do and I am sure many of the people here today run their businesses in similar ways.'
Engskov added: 'We've learned it is vital to listen closely to our customers - and that acting responsibly makes good business sense. We're experiencing one of the most difficult macro-economic periods in many years, and our customers are under a great deal of financial pressure. With the backdrop of these difficult times, in the area of tax, our customers clearly expect us to do more.'
In response, HMRC said that 'corporation tax is not a voluntary tax'.
It is not clear how Starbucks will change its tax position but reputational risk and a major high street presence have combined to force the tax review.
Starbucks provoked the ire of the nation - and the Public Accounts Committee - when it was revealed how it employed a series of entirely legal - but complex - methods to minimise its profits and thereby its tax bill.
Paying big royalties to another part of the company for the privilege of using the brand name - at a rate of 6% of sales, was just one of the methods employed to minimise its reported profits.
Conor Delaney, tax lawyer at Milestone International Tax Partners, said the announcement heralded a new dawn in the global tax landscape.
'Strong arm tactics by Margaret Hodge and the Public Accounts Committee appear to be paying off. Google and Amazon will be under pressure to follow suit, but where does this end, and at what cost to the UK's reputation as an investment destination for multi-nationals?
'This is symptomatic of a shift in the global tax landscape whereby companies will need to give additional consideration to reputational considerations, rather than the strict letter of the law.'
In the past three years Starbucks has paid no UK tax at all despite amassing sales of £1.2bn.
In 2011, the company reported a £33m UK loss on sales of £398m and subsequently paid no corporation tax.
The company says its UK business already pumps some £300m into the British economy each year.