In a speech to the London Chamber of Commerce, Kris Engskov,
managing director of Starbucks UK, said the coffee company will
make changes that result in a higher corporate tax liability,
as well as making a £10 million ($16 million) payment to
the UK tax authorities in each of the next two years.
The changes Engskov referred to are based on tax deductions
presently claimed by the company.
"Today, I am announcing changes which will result in
Starbucks paying higher corporation tax in the UK – above what is currently required by law,"
said Engskov. "Specifically, in 2013 and 2014 Starbucks will
not claim tax deductions for royalties or payments related to
our intercompany charges."
In addition to not claiming tax breaks for interest paid on
intercompany loans or for the royalties it pays, Starbucks UK
will also not claim deductions for the coffee it purchases or
for capital allowance deductions and carry-forward losses.
This will apply for "two years or until we make a profit",
while the £10 million annual payment will be made
regardless of whether the company is profitable during those
two years. In this sense, the £10 million will act as
payment in lieu of corporation tax, which the company maintains
it does not owe because of its loss-making position.
Tax transparency and CSR
Engskov also claimed that "doing the right thing is part of the DNA of
our company", adding "the most important asset we have
built and developed with our customers is trust".
"We’ve also recognised over many years that acting responsibly is also good for the bottom
line," he added, though he admitted "the emotion of the issue has taken us a
bit by surprise".
A Starbucks spokesperson also told International Tax
Review that tax transparency is a boardroom-level concern
for the company, but conceded that no changes have been made to
its corporate social responsibility (CSR) agenda in reaction to
While some will view Starbucks’ latest move as
a positive gesture, others are viewing it as purely reactionary and tax justice
campaigners have not reacted well to the announcement.
"Offering to pay some tax if and when it suits you
doesn’t stop you being a tax dodger," said Hannah
Pearce, a spokeswoman for UK Uncut. "Starbucks have been
avoiding tax for over a decade and continue to deny that it
paid too little tax in the past. Today’s
announcement is just a desperate attempt to deflect public
Pearce called the announcement a "hollow promise" and
confirmed that 40 "actions" will be taking place in Starbucks
stores across the country, with people "transforming Starbucks
stores into refuges, crèches and other services the
government are cutting with their unjust and unnecessary
Pearce also claimed the £10 million that Starbucks
have estimated they may end up paying "is £5 million less
than that paid by their nearest competitor Costa Coffee".
For more insight into how your company can successfully
manage the balance between tax planning, tax transparency and
corporate reputation, see the December/January double magazine
issue of International Tax Review, which features an
article that tackles this issue, authored by James Henderson,
chief executive of multinational public relations and marketing
company, Bell Pottinger Private.
International Tax Review also published a special
issue on tax transparency in July/August 2012, as
well as running an annual Tax & Transparency Forum.