Five questions answered on Starbucks' low UK tax payments
What's the deal?
The coffee giant hit the headlines yesterday after a Reuters’ investigation revealed Starbucks particularly low UK tax contributions. We answer five questions on Starbucks UK tax payments.
What’s the deal with Starbucks UK tax contributions?
It has been revealed that Starbucks has paid only £8.6m in tax to the UK in 12 years, despite earnings of £3bn in sales since 1998. Effectively it has paid only 1 per cent corporation tax since 1998 but none since 2008. Last year it generated £398m in UK sales but paid no corporation tax.
Is this legal?
A Starbucks representative told the BBC:
"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."
How is this legal?
Over the last five years Starbucks has reported losses and therefore is not legally required to pay corporation tax. However, it has been reported that Starbucks told its investors it was profitable. Executives also told analysts the UK business was "successful", "profitable" and they were "very pleased with the performance", according to the Reuters’ investigation.
Is this morally right?
That depends on your opinion. Some believe it is unfair large international companies such as Starbucks can pay so little tax when small independent coffee houses have to pay tax on their profits and can’t afford expensive tax experts, like Starbucks can, to advise them on what some see as "tax avoidance".
Richard Murphy from Tax Research UK, told BBC Radio 5 live: "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," Murphy consulted Reuters in there investigation.
While, on the other side of the argument, Tax expert John Whiting from the Chartered Institute of Taxation told the BBC:
"In many ways corporation tax is a bit of a bonus - the company should be paying it if it is making profits," he said.
"But in many ways the biggest contribution it makes is in creating employment - [which generates] PAYE, National Insurance, paying business rates, VAT.
"The company may not be paying much corporation tax but the country will still be making a good profit out of them."
Is this common?
Yes. Facebook paid only £238,000 in tax last year in the UK despite making an estimated £175m in sales. Google paid £6m tax on UK revenues of £395m and the Guardian revealed earlier in the year that Amazon had generated more than £7.6bn of sales in the UK over the past three years but paid no corporation tax on the profits from those sales.
What is the government doing about this issue?
Treasury Minister Sajid Javid has said:
"We are looking at all avenues of tax evasion and closing down all avenues for tax avoidance, whether it is companies or individuals.
"That is why we have invested very heavily in the last two years in more resources at HMRC - hundreds of new people to look at just these types of issues."