Starbucks tax payments a bizarre move

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.