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Starbucks - UK tax 'avoiders'

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The Large One

Who's Next?
Jul 7, 2003
52,343
97.2FM
Starbucks 'paid just £8.6m UK tax in 14 years'

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

"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."

According to the Reuters investigation, Starbucks generated £398m in UK sales last year but paid no corporation tax. In comparison, rival Costa recorded sales of £377m in the UK last year, and paid £15m in tax, or 31% of its profits.

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."
 


Springal

Members
Feb 12, 2005
20,401
GOSBTS
Surely it is up to our government to sort this out? We all, as individuals will avoid tax where we can, what difference is a corporation ? If these loopholes or schemes exist, then so be it. Its not right, but if these mechanisms are there, why not look to sort these?
 

GreersElbow

Members
Jan 5, 2012
4,870
A Northern Outpost
At least Costa played by the moral rules ! The government really does need to ensure all these corporation tax loopholes are closed.

What tax loophole?

As far as I'm aware, they made no profit. The article is ignoring its balance sheet and profit and loss records. For all we know, they ran up high administrative costs and recorded allowable expenses in order to minimise their profit and alas their CT liability.

If what Starbucks are doing is wrong, then we must persue every limited company in the country who take below the threshold of the personal tax allowance, and bring down the tax threshold on dividends being paid out. But this won't happen.
 

Vegas Seagull

Members
Jul 10, 2009
7,782
What tax loophole?

As far as I'm aware, they made no profit. The article is ignoring its balance sheet and profit and loss records. For all we know, they ran up high administrative costs and recorded allowable expenses in order to minimise their profit and alas their CT liability.

If what Starbucks are doing is wrong, then we must persue every limited company in the country who take below the threshold of the personal tax allowance, and bring down the tax threshold on dividends being paid out. But this won't happen.

A little knowledge is a dangerous thing...
 


The Large One

Who's Next?
Jul 7, 2003
52,343
97.2FM
The Reuters report in full...

(Reuters) - Starbucks' coffee menu famously baffles some people. In Britain, it's their accounts that are confusing. Starbucks has been telling investors the business was profitable, even as it consistently reported losses.

This apparent contradiction arises from tax avoidance, and sheds light on perfectly legal tactics used by multinationals the world over. Starbucks stands out because it has told investors one thing and the taxman another.

The Seattle-based group, with a market capitalization of $40 billion, is the second-largest restaurant or cafe chain globally after McDonald's. Accounts filed by its UK subsidiary show that since it opened in the UK in 1998 the company has racked up over 3 billion pounds ($4.8 billion) in coffee sales, and opened 735 outlets but paid only 8.6 million pounds in income taxes, largely due because the taxman disallowed some deductions.

Over the past three years, Starbucks has reported no profit, and paid no income tax, on sales of 1.2 billion pounds in the UK. McDonald's, by comparison, had a tax bill of over 80 million pounds on 3.6 billion pounds of UK sales. Kentucky Fried Chicken, part of Yum Brands Inc., the no. 3 global restaurant or cafe chain by market capitalization, incurred taxes of 36 million pounds on 1.1 billion pounds in UK sales, according to the accounts of their UK units.

Yet transcripts of investor and analyst calls over 12 years show Starbucks officials regularly talked about the UK business as "profitable", said they were very pleased with it, or even cited it as an example to follow for operations back home in the United States.

Troy Alstead, Starbucks' Chief Financial Officer and one of the company officials quoted in the transcripts of calls Reuters reviewed, defended his past comments, saying the company strictly follows international accounting rules and pays the appropriate level of tax in all the countries where it operates. A spokeswoman said by email that: "We seek to be good taxpayers and to pay our fair share of taxes ... We don't write this tax code; we are obligated to comply with it. And we do."

When presented with Reuters' findings, Michael Meacher, a member of parliament for the Labour Party who is campaigning against tax avoidance, said Starbucks' practice "is certainly 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."

There is no suggestion Starbucks has broken any laws. Indeed, the group's overall tax rate - including deferred taxes which may or may not be paid in the future - was 31 percent last year, much higher than the 18.5 percent average rate that campaign group Citizens for Tax Justice says large U.S. corporations paid in recent years.

But on overseas income, Starbucks paid an average tax rate of 13 percent, one of the lowest in the consumer goods sector.

The UK tax authorities and the U.S. Internal Revenue Service (IRS) said confidentiality rules prevented them from commenting.

A LOSSMAKER WITH FAT MARGINS

You could think of Starbucks' differing versions of its experience in the UK as two different coffees. To its investors, it sells an espresso - strong and vibrant. The UK taxman gets a watered-down Americano.

The contradiction between the two stories becomes evident from scrutiny of its group reports and the transcripts of 46 conference calls with investors and analysts.

Like most big corporations, Starbucks' group earnings statements do not break down its profits and tax payments by country, although on calls it occasionally shares details about larger markets such as the UK. But companies operating in the UK are obliged to lodge accounts at the company register, Companies House, to give a picture of the unit's financial performance.

In the 2007 financial year to end-September, Starbucks' UK unit's accounts showed its tenth consecutive annual loss. Yet that November, Chief Operating Officer Martin Coles told analysts on the fourth-quarter earnings call that the UK unit's profits were funding Starbucks' expansion in other overseas markets. Then-Chief Financial Officer Peter Bocian said the unit had enjoyed operating profit margins of almost 15 percent that year - equivalent to a profit of almost 50 million pounds.

For 2008, Starbucks filed a 26 million pounds loss in the UK. Yet CEO Schultz told an analysts' call that the UK business had been so successful he planned to take the lessons he had learnt there and apply them to the company's largest market - the United States. He also promoted Cliff Burrows, former head of the UK and Europe, to head the U.S. business.

Schultz said he looked forward to Burrows "now applying that same drive and business acumen to leading our U.S. business."

In 2009, accounts filed in London claimed a record loss of 52 million pounds for the financial year to September 27, while CFO Alstead told investors on a call that the UK unit was "profitable."

For 2010, the UK unit reported a 34 million pounds loss, and Starbucks told investors that sales continued to grow.

Starbucks UK unit's accounts for the year to September 2011 showed a 33 million pounds loss. Yet John Culver, President of Starbucks' International division, told analysts on a call earlier that year that "we are very pleased with the performance in the UK."

When Reuters asked Starbucks' CFO Alstead which version was accurate - Starbucks' accounts for the UK taxman, or its comments to investors, he said: "The UK is very troubled, unfortunately. Historically it has performed a little bit better than it does now."

He did not explain why the UK business was so disappointing, but said Starbucks was "taking very aggressive actions" to improve its performance, including changing its cost structure.

Meacher, the politician, said Starbucks' experience reflects broader problems in the UK system, which allows companies to pay less tax than they morally should. Tax campaigners say that failure is partly policy: successive governments have urged the tax authority to take a pro-business stance. The UK is one of the few rich countries not to have general anti-avoidance legislation, which the government is preparing now.

A LICENCE TO LOSE MONEY

Presented with the contradiction between Starbucks' UK accounts and its comments to investors, Starbucks' CFO Alstead identified two factors at play, both related to payments between companies within the group.

The first is royalties on intellectual property. Starbucks, like other consumer goods businesses, has taken a leaf out of the book of tech companies such as Google and Microsoft. Such firms were identified by Senator Carl Levin, chairman of the U.S. Senate Permanent Subcommittee on Investigations, in a September hearing on how U.S. companies shield billions from tax authorities. He said they were engaged in "gimmickry" by housing intellectual property units in tax havens, and then charging their subsidiaries fat royalties for using it.

Like those tech firms, Starbucks makes its UK unit and other overseas operations pay a royalty fee - at Starbucks, of six percent of total sales - for the use of its ‘intellectual property' such as its brand and business processes. These payments reduce taxable income in the UK.

McDonald's also charges its UK subsidiary a royalty for ‘intellectual property', although at a lower rate of 4-5 percent.

The fees from Starbucks' European units are paid to Amsterdam-based Starbucks Coffee EMEA BV, described by the company as its European headquarters, although Michelle Gass, the firm's president in Europe, is actually based in London.

It's unclear where the money paid to Starbucks Coffee EMEA BV ends up, or what tax is paid on it. The firm had revenues of 73 million euros in 2011 but declared a profit of only 507,000 euros. When asked how it burnt up all its revenue, Alstead pointed to staff costs and rent. The HQ has 97 employees.

Alstead said some of the unit's revenue was also paid to other Starbucks units, including one in Switzerland. He declined to say if fees paid for the use of the brand, which originated in the United States, are sent back to be taxed.

Professor Michael McIntyre at the Wayne State University Law School said it was rare for such fees to be repatriated to the United States, where corporate profits are taxed at up to 39 percent. In contrast in Switzerland, lawyers say, earnings from royalties can be taxed at rates as low as 2 percent.

Starbucks declined to comment when asked if it used offshore jurisdictions in this way.

ARM'S LENGTH

The UK tax authority, Her Majesty's Revenue & Customs (HMRC), allows companies to deduct intellectual property fees if firms can show the charges were made at "arm's length" - that is, if companies can show they would have agreed on the terms even if they were not connected.

One way to prove this is to show that a license for which a royalty is paid is key to the subsidiary's profitability, said Stella Amiss, international tax partner with accountancy firm PwC. After all, if you are paying for an asset that never generates a profit, you are probably paying too much. "You would need to show a track record of profitability," she said.

Starbucks says it abides by the ‘arm's length' principle, even if the company has not been profitable in the UK.

Accounts for McDonald's UK unit show it also pays trademark fees to associated companies, but these have generated profit. A spokeswoman for KFC said its UK unit did not pay such fees.

Accounting firm Deloitte, which audits both Starbucks' group accounts and those of the UK unit, declined to comment.

BEAN COUNTER

The second factor for the contradiction between Starbucks' local accounts and its comments to investors is a requirement to allocate some funds generated in the UK to other subsidiaries in its supply chain. "The profit sits where the value is created. That is a principle we subscribe to," Starbucks CFO Alstead said.

Starbucks buys coffee beans for the UK through a Lausanne, Switzerland-based firm, Starbucks Coffee Trading Co. Before the beans reach the UK they are roasted at a subsidiary which is based in Amsterdam but separate from the European HQ.

Alstead said 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. This is a common requirement, which multinationals meet by setting prices, known as a "transfer prices", for goods that pass between different group entities. Experts say transfer prices are also a way for a company to minimize its tax bill.

It's not clear how Starbucks allocates such costs. What is clear is that while its UK subsidiary is making a loss, its Dutch roasting operation has only a small profit. In the past three years, the Amsterdam unit has had an average annual turnover of 154 million euros but recorded average profit of 1.6 million euros, or 1 percent of that, according to its accounts.

On average, 84 percent of the Amsterdam unit's annual revenue has gone on buying goods such as raw coffee beans, the electricity to roast them, and packaging.

Starbucks declined to give details, or comment on what the charges indicate about the price its roaster paid its Swiss unit for coffee beans. It also declined to say what profit the Swiss coffee-buying unit makes, although Alstead said it was "moderately" profitable. Swiss law does not require the unit to publish accounts.

Corporate profits are taxed at 24 percent in the UK and 25 percent in the Netherlands, whereas profits tied to international trade in commodities like coffee are taxed at rates as low as 5 percent in Switzerland, lawyers there say.

Starbucks was the subject of a UK customs inquiry in 2009 and 2010 into the company's transfer pricing practices. This was "resolved without recourse to any further action or penalty", a Starbucks spokesman said. HMRC declined to comment on the probe.

A CASH-RICH BORROWER

Starbucks' UK accounts show a third way it cuts its tax: inter-company loans. These are a common tactic for shifting profits to low-tax jurisdictions, according to a guidance manual used by the UK tax authorities, who try to limit the technique.

Such loans bring a double tax benefit to multinationals: the borrower can set any interest paid against taxable income, and the creditor can be based in a place that doesn't tax interest.

An examination of its accounts shows that Starbucks' UK unit is entirely funded by debt, and paid group companies 2 million pounds in interest last year. For comparison, McDonald's UK - which has 465 more branches than Starbucks - paid only 1 million pounds in interest to its group companies last year.

Starbucks hardly cuts its UK subsidiary a good deal. Its group bonds carry a coupon of Libor plus 1.3 percent. Libor, the London Inter-Bank Offered Rate, is an international interest rate benchmark frequently used in commercial lending. Starbucks charges its UK unit interest at Libor plus 4 percentage points. For comparison, KFC charges its subsidiaries around Libor plus 2 percentage points and the UK units of McDonald's pay affiliates interest at or below the Libor rate.

(Additional reporting by Cezary Podkul in New York Edited by Sara Ledwith, Richard Woods and Simon Robinson)
 

Gazwag

5 millionth post poster
Mar 4, 2004
29,405
Bexhill-on-Sea
They have paid PAYE & NIC which they have deducted from the staff and VAT on the vatable supplies so its not entirely true then as if they were not on the high street neither would be incurred.
 

Butch Willykins

The Geoff Linton
Jun 17, 2011
2,472
Cote d'Adur, Shoreham-by-Sea
If what Starbucks are doing is wrong, then we must persue every limited company in the country who take below the threshold of the personal tax allowance, and bring down the tax threshold on dividends being paid out. But this won't happen.

I know quite a few people that pay themselves a tax free salary of £8,105 then take dividends to supplement their income. That in itself I don't mind as it's perfectly legal. What takes the piss is when they claim tax credits based on the fact they earn £8K a year!
 


Bedsex

not my real name
Jan 29, 2009
1,109
Flitwick
The thing to consider here is that uk tax policy is to reduce the corporation tax burden (30% rate in 2007 down to 22% in 2013) and also offer incentives to multi-nationals such as the patent box regime (qualifying profits taxed at 10%) and the finance co CFC rules (effective tax rate 5.75%). The uk now has one of the lowest corporate tax rates in the G20. This is not an accident, the tax take from corporation tax is somewhere between 10 & 15% of the uk exchequers tax income, income tax and NIC make up nearly 50% of the total tax take. The theory is that by incentivising multi-nationals to come to the uk with low ct rates, the uk tax take will increase because of all the additional employee taxes raised.

There is also some fairly shoddy journalism around this, the BBC reporting that Starbucks has paid 1% tax on its uk income in the last 14 years. Corporation tax is paid by reference to taxable profits, income is irrelevant . However, that said, if it is true that Starbucks has been making uk losses for many years by virtue of inter-company recharges from overseas group companies, then that would suggest that there's something not quite right with their transfer pricing. I believe that, as is usual in such cases, we're not seeing the full picture here.
 

Publius Ovidius

Members
Jul 5, 2003
44,928
at home
Yes, it's hard to get ones head around this government allowing avoidance schemes involving billions and on the other hand chasing people on invalidity benefit

You can see where the priorities lie in this country ruled by the privileged elite....trouble is labour knew about these loopholes and did eff all about it too.
 

saafend_seagull

Members
Jul 5, 2003
13,492
BN1
Welcome to the world of what is known as transfer pricing.

Not read the long article in here but think they are adjusting profits in countries so highest profit is in the country with lowest tax rate??
 

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