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Starbucks acknowledges benefits of tax transparency and pledges to pay £10 million a year to UK

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Much-maligned coffee chain Starbucks this morning announced that, “having listened to customers and the British public”, it will pay higher corporation tax in the UK. The company says the payment amount will be higher than what is required by law.

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 recent events.

Reaction

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 pressure.”

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 austerity plans”.

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.

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