US-based coffee chain Starbucks has made its first corporation tax payment in the last four years despite continued losses in the UK. The company paid £5 million in corporation tax earlier this week and reports that it will spend another £5 million on UK corporation taxes in support of its customers’ concerns.
Starbucks is one of several foreign companies to have been hit by allegations of tax evasion in recent years. California-based search engine firm Google was accused of using Irish corporations to avoid paying UK taxes earlier this year, as was Internet retailing firm Amazon.com.
Both companies have repeatedly insisted that their tax strategy falls within the law in the UK, and that confusing tax practices make it difficult to know how corporation taxes should be applied. Starbucks has reportedly paid just £8.6 million in taxes over the last fifteen years, despite annual sales of over £400 million in its UK branches.
The company has reportedly failed to make a profit from its UK operations, with just one year of operations turning a profit. The company is currently reviewing its store policy throughout the UK to increase its profits, an effort which could result in many of its stores closing down or switching to franchised ownership.
Starbucks’ tax strategy has been regarded as one of the most complex for a franchise operation in the UK. The company purchases its coffee beans from a supplier located in Switzerland and pays royalties to a division in the Netherlands. The company also makes use of Denmark-based operations to limit its total European tax obligations.
Such strategies are far from unusual for large corporations, and Starbucks’ approach to criticism is to be commended. However, the company’s declaration that it has yet to make a profit in the UK is seen by many as unusual given its immense network of outlets and long history of UK operations.
