Coffee chain’s move comes on eve of report by MPs expected to condemn use of overseas subsidiaries to reduce tax burden
Starbucks has agreed to review its UK tax arrangements following months of criticism over its use of overseas subsidiaries which led to it paying no corporation tax in the last three years.
The decision comes a day before the public accounts committee issues a report that is expected to be highly critical of the coffee chain, and as George Osborne prepares to announce anti-tax avoidance measures in Wednesday’s autumn statement.
The company admitted its reputation had been damaged by the revelations that it paid £8.5m in taxes on its profits since arriving in the UK in 1998, and is in negotiations with HM Revenue & Customs.
It said: “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. The company has been in discussions with HMRC for some time and is also in talks with the Treasury.”
On Wednesday the chancellor is likely to announce plans to tackle tax avoidance. Starbucks, Google, Amazon, Ikea and eBay, among others, have been accused of not paying their fair share of taxes in the UK.
Osborne told the BBC’s Andrew Marr show on Sunday: “I think you can do two things. One is you can enforce the taxes we have got and I am going to be announcing tomorrow extra investment in the part of the Inland Revenue that tackles tax avoidance by multinational companies. Second, you make sure internationally we have the right rules.”
Starbucks insists it pays the correct amount of tax, but MPs were highly critical of the company’s use of European subsidiaries which led to the company making near-continuous losses in the UK despite sales of £3bn since 1998.
Questions were also raised after board members of the US parent company told analysts and investors in the past that the UK business had been profitable.
It added: “Starbucks is committed to the UK for the long term and we have invested more than £200m in our UK business over the past 12 years. Starbucks has complied with all the tax laws in this country but has regretfully not been as profitable as we would have liked.”
The company continues to make losses by purchasing the coffee beans from its Swiss subsidiary at a 20% premium. It then pays a 4.7% levy to its Dutch offices for the coffee roasting process, the recipes and the use of the Starbucks brand. The firm can then pay lower rates of corporation tax on its profits, including 12% in Switzerland.
But Starbucks is thought to be changing its payment structure to the Dutch and Swiss bases, meaning it could make a profit. A 6% premium had previously been charged by the business in the Netherlands. But this was negotiated down to 4.7% by Starbucks and the Dutch authorities. A similar negotiation could take place with HMRC. High rents in the UK have also helped to erode profitability.
Along with bosses from Amazon and Google, Starbucks’ chief financial officer, Troy Alstead, faced hostile questioning from the public accounts committee last month. Members of the committee accused the companies of avoiding taxes and said they did not believe that Starbucks had not made a profit in the UK.
The politicians were equally disapproving of HMRC and said tax inspectors had given multinationals an easy ride when it came to paying corporation tax.