SO, STARBUCKS has come good on its £20m promise to the taxman, making its first £5m payment to HM Revenue & Customs this week. How kind.
The move - an attempt to placate the irate British public, tabloids and Public Accounts Committee after it emerged the coffee house had paid only £8.6m in corporation tax since 1998 - gives the impression the levy is somehow voluntary. Indeed, these new payments have been openly described as such.
"HMRC should calculate what it thinks it is owed and charge it, and Starbucks should pay it. Tax is not voluntary, and the taxman should not be in the business of accepting extra, voluntary, payments."
I wrote those words in December after Starbucks announced its intention to make the payments, and I feel it's as true now as it was then.
Granted, it may be a good PR move, but that is simply not how it works, and gives entirely the wrong impression of how the tax system functions.
A prime example of that is the mainstream media's repeated and widespread citation of companies' sales and turnovers rather than their profit, which is, of course, what corporation tax is levied on. It only serves to confuse and does very little to further the debate on corporate taxation.
So do these payments mean Starbucks is profitable in the UK? It's not clear, although its statement alongside the first instalment said it is "undertaking measures to make Starbucks profitable in the UK", suggests it isn't just yet.
Well, it wouldn't be if it hadn't decided to forego reductions against various transfer pricing mechanisms and capital allowances, which it's entitled to.
It's an incredibly weird situation, but the salient point is this: companies' tax bills should not be determined by public opinion, rather than the rules.
From Starbucks' perspective, though, it should be minded to follow through its new policy. A one-off gesture will only attract more ire.
Calum Fuller is the tax correspondent for Accountancy Age and Financial Director.
Of course, it's easy to sneer at the media's focus on relating tax to turnover; however, there is little else they can do if they suspect that the profit figures have been "massaged". At least the figures for tax and turnover should be fairly unmassageable.
Why do they consider the profits to be massaged? Because they find out that Starbucks source their coffee from that well reknowned coffee-producing country called Switzerland, rather than the from the usual suspects in Central and South America.
There is also the disconnect between Starbucks actions and the public's own experience. For example, HMV make losses and their shops close; Comet make losses and their shops close; Woolworths make losses and their shops close: Starbucks make losses and ...... they open more shops. It just doesn't ring true.
And is it really so bizarre for Starbucks to capitulate like this? Not really. A cursory glance at Starbucks US annual report makes it quite clear that one of the main risks perceived by the board is that the public " disagree with the company's trading methods". I think that we are firmly in that territory!
If you look further at Starbucks annual report it indicates that 40% of turnover is generated overseas and 25% of that comes from the UK. Furthermore, the overseas business contributes around £300m to group profit (ie, presumably with the Swiss profit loading stripped out). So conservatively, the UK is contributing around £75m to Starbucks group profits. That puts their £10m tax payment into perspective.
At the end of the day, the press and public have got their teeth stuck into Starbucks. To coin a phrase, they don't like to be pissed on and told that it's raining. And after all, if Starbucks don't toe the line, there's always Costa and countless other purveyors of coffee who do pay their taxes in the UK.
Power to the people!!!
Posted by: Paul Newbold, 28 Jun 2013 | 17:09
UK tax regs provide for claiming allowances and deductions. It is not illegal to not do so. With the USA having a "Alternative Minimum Tax" regulation USA executives do not find this 'bizarre'. Whether Starbucks has been 'smart' in its playing its 'cards' is a different story.
Posted by: Clifford Moggs, 28 Jun 2013 | 19:28
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