THE COFFEE chain Starbucks has reportedly paid just £8.6m in corporation tax in the UK over the last 14 years.
News agency Reuters carried out a four-month investigation looking at how the company was able to tell investors that is was profitable, even though it was consistently reporting losses. It concluded that it was tax avoidance.
Campaigners are now calling for a change to the rules, given that independent coffee shops and small businesses are being forced out of business by what is viewed as unfair competition from the multinationals that manage to avoid tax.
Richard Murphy from Tax Research UK, who was consulted by Reuters during the investigation, wrote on his blog that it should be the smaller, home grown business that should very clearly get the support of the tax system. But it isnt: the exact reverse is happening.
Julys Foodservice Footprint covered the issue of tax, suggesting that it could be The next green thing. The article highlighted how the issue of tax avoidance has shot up the ethical agenda: Environmental and social issues have traditionally been the focus of social responsibility within companies. But with economic hardship growing for both the general public and governments, there is a new ethical issue on the block: tax.
The Reuters investigation found Starbucks enjoyed over £3 billion in UK sales since 1998 but had paid less than 1% corporation tax. Last year, the coffee chain generated £398m in UK sales but paid no corporation tax.
Costa, by comparison, recorded £377m in sales last year, and its tax bill came to £15m, or 31% of profits.
The apparent contradiction arises from tax avoidance, reads the Reuters online report, and sheds light on the perfectly legal tactics used by multinationals the world over. Starbucks stands out because it has told investors one thing and the taxman another.
Starbucks has said there has been no suggestion that it is anything but compliant with the tax laws. It achieved the low, or nil payments, through posting a loss, which meant it was not liable for corporation tax, and by paying money to other parts of the business.
However, transcripts from calls between Starbucks and analysts to discuss performance updates included comments about how profits from the UK were fuelling expansion elsewhere.
Starbucks isnt the first company to have fallen foul of such an investigation. In April the Guardian reported that online retailer Amazon had generated sales of more than £7.6 billion in the UK over the past three years, yet had not paid any corporation tax on the profits from those sales.
The revelations about Starbucks have been referred to as a possible game-changer by campaigners who are calling for changes to the tax rules.
What Starbucks is doing may be legal, but what it also shows is that business does not operate on a playing field in the UK, Murphy wrote on his blog. He added: Whats clear from whats happening is something thats been glaringly obvious to a few for a long time, but for which there hasnt been a clear example, and that is that multinational companies and the rules by which they can trade very obviously provide a clear, unfair and wholly unjustifiable competitive advantage to such corporations over smaller, locally owned and nationally based businesses.
He concludes: So the Starbucks tax case is important because it raises real issues of tax policy here in the UK that if not addressed will threaten the viability for UK small businesses. There cant be anything much more important than that when were looking for UK business to help pull us out of the recession, but so far the government seems quite unable to see the seriousness of the situation they have created. And that leads to the inevitable question of why that is the case, and in whose interests they are governing.