THE ONLY things certain in life are death and taxes. Unless you are Google, Amazon or Starbucks, of course.
But in an unprecedented move, the latter has now decided to pay corporation tax in the UK above what is currently required by tax law. This means it will pay or pre-pay approximately £10 million in each of the next two years.
However, some have warned that the statement makes a mockery of the UK tax system.
In an open letter posted on its website, managing director for Starbucks Coffee Company UK, Kris Engskov, writes:
Today we are announcing changes that will result in the company paying higher corporation tax in the UK. Specifically, Starbucks will not claim tax deductions for royalties and standard intercompany charges. Furthermore, Starbucks will commit to paying a significant amount of tax during 2013 and 2014 regardless of whether the company is profitable during these years.
The storm (in a coffee cup) revolves around the profit that the company does, or does not, make in the UK. A Reuters investigation found that while Starbucks has achieved over £3bn in UK sales since 1998, it has paid less than 1% corporation tax. Last year, sales were £398m, but the corporation tax was nil.
Corporation tax is levied on profits but Starbucks has avoided paying it for three years in the UK through so-called transfer pricing complex international payments within the company. Starbucks currently makes a loss due to a 4.7% premium paid to its Netherlands division where the coffee beans are roasted and another 20% premium to Switzerland to buy the coffee beans.
In its letter, the company maintains that is it has found making a profit in the UK is difficult.
The turnabout comes after weeks of intense consumer and campaign pressure following the Reuters revelations. This has damaged the companys brand. Engskov said the commitments it is making on corporation tax are intended to begin a process of enhancing trust with customers.
Campaigners are not convinced. Hannah Pearce from UK Uncut said the announcement is a desperate attempt to deflect public pressure. This weekend she said 40 actions will take place across the country turning Starbucks stores into refuges, crèches and other services which the government are cutting with their unjust and unnecessary austerity plans.
Tax experts are not too pleased either. Patrick Stevens, president of the Chartered Institute of Taxation, told the Telegraph: If Starbucks is saying its current tax arrangements are all agreed with HMRC, then in commercial terms, it is making a gift to the Government, not paying tax. Its gobsmacking really.