Starbucks bows to pressure on UK tax

LONDON Thu Dec 6, 2012 2:37pm EST

A sign is seen outside a Starbucks Coffee shop in central London December 3, 2012. REUTERS/Andrew Winning

A sign is seen outside a Starbucks Coffee shop in central London December 3, 2012.

Credit: Reuters/Andrew Winning

LONDON (Reuters) - Coffee chain Starbucks (SBUX.O) said it could pay about 20 million pounds in corporation tax in Britain over the next two years, surrendering to widespread public criticism over allegations of tax avoidance.

"We are making a commitment that we will propose to pay a significant amount of corporation tax during 2013 and 2014 regardless of whether our company is profitable during these years," Starbucks UK managing director Kris Engskov said in a speech.

The announcement follows weeks of public attacks in the media and parliament after a Reuters report in October which said that over the past three years Starbucks has paid no corporation tax in Britain despite telling investors that the local business was highly profitable, while reporting an actual loss.

One of the tax-deductible costs weighing on Starbucks' British business has been the royalties paid to an Amsterdam-based Starbucks company for the use of intellectual property, such as the brand.

"In 2013 and 2014 Starbucks will not claim tax deductions for royalties or payments related to our inter-company charges," he told an audience at the London Chamber of Commerce.

In doing so, Starbucks would contribute about 10 million pounds in tax each year, he said, meaning that the company would pay more than is required under British tax law.

Engskov said again on Thursday that the group has always acted according to the letter of the law, saying that the company, which opened for business in Britain in 1998, was not hiding big profits from the tax authorities.

He said Starbucks served 2 million British customers a week but it had not seen the same success in terms of generating profits due to the high rents it paid to secure the best locations and the costs of its rapid expansion.

Recent store openings had put the company on track for sustained profitability, he said, but its customers expected it to do more on tax sooner.

He said he had not yet discussed the proposal with the tax authorities.

HM Revenue and Customs (HMRC) said corporation tax was not a voluntary tax and Parliament set out the rules and rates for businesses to follow.

"The public expects businesses to pay their fair share and HMRC will challenge, through the courts if necessary, any structures or tax payments that do not comply with the UK tax law," a spokesman said.

The coffee chain's units in Germany and France also fail to report profits due to inter-company royalty payments, the Reuters investigation of the company's accounts showed last month.

Engskov told Reuters there was no plan to extend the proposal on tax payments in Britain to other markets where Starbucks operates.

The UK Uncut activist group, which has been protesting against companies and wealthy individuals which are accused of avoiding paying taxes which they say would obviate the government spending cuts, said it would continue to target Starbucks, and is planning protests at 40 stores across the country this weekend.

"Offering to pay some tax if and when it suits you doesn't stop you being a tax dodger," spokeswoman Hannah Pearce said. "Today's announcement is just a desperate attempt to deflect public pressure."

Earlier this week Starbucks along with Amazon (AMZN.O) and Google (GOOG.O) were accused by British lawmakers of being 'immoral' in seeking to avoid paying taxes.

(Additional reporting by Tom Bergin and Sarah Young; Editing by Paul Sandle and Greg Mahlich)

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