Starbucks 'paid just £8.6m UK tax in 14 years'

Starbucks has been doing nothing illegal but their practice has been described as "disgraceful"

US coffee giant Starbucks reportedly paid just £8.6m in corporation tax in the UK over 14 years.

The four-month investigation by news agency Reuters also found the firm had paid nothing in the last three years.

Starbucks UK reported losses so did not have to pay corporation tax, but told investors that it was "profitable".

"We have paid and will continue to pay our fair share of taxes in full compliance with all UK tax laws, as we always have," Starbucks said.

"There has been no suggestion by any authority that we are anything but compliant and good tax payers.

"We do this in a way that is consistent with the values that have guided us since we were founded more than 40 years ago: balancing our need to operate a profitable business with a social conscience."

But campaigner Richard Murphy from Tax Research UK, who was consulted by the Reuters team as part of its investigation, said: "Starbucks are playing the game here. This is tax avoidance, they're doing nothing illegal. That doesn't mean to say it's right, in my opinion," he told BBC Radio 5 live.

He said it showed that the current rules on tax did not work and it was up to politicians to put it right.

"When we have a tax system that lets very large companies like Starbucks be on our High Street and pay no tax and are competing with small locally owned businesses who are paying tax on all their profits, then there's something very clearly wrong with our tax system."

Treasury Minister Sajid Javid said the government could not comment on individual companies, but was "very focused" on the issue.

"We are looking at all avenues of tax evasion and closing down all avenues for tax avoidance, whether it is companies or individuals.

"That is why we have invested very heavily in the last two years in more resources at HMRC - hundreds of new people to look at just these types of issues."

Royalty fees

According to the Reuters investigation, Starbucks generated £398m in UK sales last year but paid no corporation tax.

It found Starbucks had made over £3bn in UK sales since 1998 but had paid less than 1% in corporation tax.

It said the coffee giant had reported losses in each of the last five years and therefore did not have to pay any corporation tax, yet executives told analysts that the UK business was "successful", "profitable" and they were "very pleased with the performance".

It identified payments between companies within the group as a factor in reducing its taxable income in the UK.

For instance, Starbucks' UK unit and other overseas operations have to pay a royalty fee to other parts of the business for the use of its intellectual property such as its brand and business processes.

The company also has to allocate some funds generated in the UK to other subsidiaries in its supply chain. Starbucks buys coffee beans for the UK through a Switzerland-based subsidiary and the beans are then roasted at another based in Amsterdam.

Chief financial officer Troy Alstead told Reuters that tax authorities in the Netherlands and Switzerland require Starbucks to allocate some profits from its UK sales to its Dutch roasting and Swiss trading units.

'Extremely unfair'

Starbucks is not alone though, in facing criticism for its low tax bill.

Last week Facebook was criticised for paying just £238,000 in tax last year in the UK despite estimates of making £175m in sales, while earlier this year Google was also criticised for paying just £6m tax on UK revenues of £395m.

In April, a report in the Guardian said that online retailer Amazon had generated sales of more than £7.6bn in the UK over the past three years but had not paid any corporation tax on the profits from those sales.

Labour MP and tax campaigner Michael Meacher said Starbucks' practice was "profoundly against the interests of the countries where they operate and is extremely unfair".

"They are trying to play the taxman, game him. It is disgraceful," he said.

A spokesman for HMRC said: "For legal reasons, we cannot comment on the tax affairs of individual businesses, but we make sure that multinationals pay the right tax to the UK in accordance with UK tax law."

Tax expert John Whiting from the Chartered Institute of Taxation said the HMRC monitored big companies carefully and the government would be looking to close any genuine loopholes. But in terms of tax revenue, he told the BBC it was important to look at the bigger picture.

"In many ways corporation tax is a bit of a bonus - the company should be paying it if it is making profits," he said.

"But in many ways the biggest contribution it makes is in creating employment - [which generates] PAYE, National Insurance, paying business rates, VAT.

"The company may not be paying much corporation tax but the country will still be making a good profit out of them."

Starbucks said it was committed to the UK and pointed out that it plans to create 5,000 new jobs over the next five years.

Action Aid, the development charity which campaigns for multinationals to pay fair taxes in the developing countries they operate in, said government action was key to stop companies "hiding wealth" by moving it to tax havens.

"Companies can improve their practices, but ultimately the rules need to change," Jenny Ricks, head of campaigns at Action Aid, told BBC News.

She called for companies to publish a basic set of accounts for every country they operate in to make it easier for tax authorities to work out how much tax is owed.

"The UK government has the chance to take the lead in tackling tax dodging next year when it chairs the G8," she said.