Starbucks’ UK operations may soon face a tax inquiry. Indeed, according to findings from a four-month investigation by Reuters, the coffee giant has been displaying a schizophrenic attitude toward profits and taxes, reporting losses to the UK tax authorities while telling analysts and investors that its UK business is ‘successful’ and even ‘highly profitable’.
The incoherence is allegedly due to the company’s complex system of royalties and internal sales, which are paid by the UK branch to the US headquarters and other subsidiaries in the coffee supply chain. For example, Starbucks UK is required by the local foreign tax authorities to allocate some of its profits to its Switzerland-based trading unit and its Amsterdam-based roasting factory.
This tactic – which is ‘in full compliance with all UK tax laws,’ says Starbucks in its defense – has allowed the company to avoid paying any corporation tax in the UK for the past four years, although it made £398 mn ($643 mn) in sales last year alone, reports the BBC.
Since 1998, Starbucks has generated more than £3 bn in revenue, paying just £8.6 mn in corporation tax. That represents a tax rate of less than 1 percent.
Other multinational companies are also under fire for the low tax bills of their UK operations. Google and Facebook were both criticized recently for paying meager corporation tax rates of 0.13 percent and 1.5 percent, respectively, while online retailer Amazon reportedly paid no tax at all on its £7.6 bn UK revenue over the past three years.
These facts have sparked indignation among British MPs, who are calling for a formal investigation into Starbucks’ tax affairs and urging the government to implement new measures preventing companies from shifting profits overseas, reports the Independent newspaper.
MP Margaret Hodge, chair of the Public Accounts Committee, announced she would be raising questions about Starbucks with the head of UK tax authority HMRC, while her fellow labor MP Michael Meacher has planned to table a motion in parliament. Conservative MP Steve Baker has also demanded an inquiry, calling for ‘a simple transparent tax law that is actually obeyed.’
UK Treasury minister Sajid Javid insists the government is ‘very focused’ on the issue. ‘We are looking at all avenues of tax evasion and closing down all avenues for tax avoidance, whether by companies or individuals,’ he told the BBC.
