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News : UK Economy Last Updated: Dec 3, 2012 - 4:52 AM

Starbucks considering paying more UK tax
By Finfacts Team
Dec 3, 2012 - 4:45 AM

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Tony, a Starbucks' barista, Boris Johnson, London mayor, and Howard Schultz, who transformed a small Seattle company into a global brand, in the company's Mayfair Vigo Street branch in central London, Sept 12, 2012. 

Starbucks, the US coffee chain, announced at the weekend that it is in discussions with the UK Revenue & Customers about paying more tax.

Starbucks, which has more than 700 stores in the UK, said it was "committed to the UK for the long term" and added: "We are looking at our tax approach in the UK. The company has been in discussions with HMRC (Her Majesty's Revenue & Customs) for some time and is also in talks with the Treasury." The company said it would release further details of its UK tax plans this week.

Troy Alstead, Starbucks chief financial officer, said last month: "It is true that over the last 14 years we have paid £8.6m of corporate income tax in the UK. Corporate income tax is a tax on profits and the simple fact is that it has been difficult for us to make a profit in the UK under any measure." Its sales in the UK since 1998 amounted to sales of £3bn

The Press Association says Starbucks' nearest UK rival, Costa, owned by Whitbread, recorded £377m sales last year, compared with Starbucks' £398m, but its tax bill came to £15m, or 31% of its profits.

Starbuck does not report profits in the UK because of inter-company charges from sister companies in the Netherlands and Switzerland.

George Osborne, chancellor of the exchequer, has signalled that he will announce measures in the Autumn Statement on Wednesday to clamp down on loopholes that enable multinational companies to pay very low or no corporate taxes in the UK. On Saturday, the campaign group UK Uncut will be stage a national day of action targeting Starbucks stores in protest at the company's tax avoidance and the impact of government spending cuts on women.

This is particularly embarrassing for a company that makes a big deal about its connection with consumers.

Speaking on the BBC's 'Andrew Marr Show,' George Osborne said that as well as extra funding for the UK authorities, it was also necessary to work at an international level on the issue.

"It is actually Britain who has been working with Germany and France to get those rules on the international table," he said.

But he also warned against "pricing Britain out of the world economy", adding that "if we make our taxes less competitive that will just mean more companies stay out of Britain".

Campaign group UK Uncut said Starbucks' announcement was "a blatant admission of guilt" that it had intentionally avoided tax.

Spokeswoman Jane Harvey said: "The government's next step must be to close the loopholes that Starbucks and other companies use to avoid paying billions in tax to the UK, instead of targeting single mums and disabled people through slashing public services, the welfare state and privatising the NHS (National Health Service)."

Boris Johnson, London mayor, last month called on Starbucks to change its tax arrangements or “do more for the society.”

“Starbucks has got a choice to make. Although it has a duty to shareholders, there is growing public unease that it can effectively escape tax obligations in a way that its high street competitors cannot because of its status as a global corporation,” Johnson told City A.M.

“It needs to reflect very fast and very seriously on its position…Either it makes a change in its tax arrangements or does a lot more to visibly serve society.”

John Whiting, who has advised the government on tax policies, told The Daily Telegraph: "Our corporation tax system is fundamentally ill-equipped to cope with our electronic era. The rules were designed when you could look at a lump of machinery and say, yes, the trade was done here, but when orders are made at the click of a button over the internet, where a trade happens and where profits have been made is far less clear. It needs to be looked at."

A number of UK domiciled companies such as John Lewis, Dixons and Wm Morrrison have called for a change. Richard Pennycook, finance director of Morrison said: "We want a level playing field. What applies to one company should apply to another. There are big differentials in what companies pay. The chancellor must look into this and regulate. Taxes on activity here in the UK should stay here. Transparency is very important."

The House of Commons Public Accounts Committee will report Monday on multinational firms' tax payments in the UK.

In November the committee took evidence from executives from Starbucks, Google and Amazon over the amount of tax the companies have paid in the UK.

It was told that Amazon recorded £2.9bn sales last year but declared Amazon.co.uk sales of just £207m. Over three years, the UK division has paid £2.3m corporation tax on £7.1bn sales.

Google paid £6m corporation tax on £2.5bn of UK revenues in 2011. Matt Brittin, chief executive of Google UK, said MPs were blaming companies for a system that they had designed "Google plays by the rules set by politicians," he said. "The only people who really have choices are politicians who set the tax rates."

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