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Starbucks ‘donation’ sets a bad precedent, tax experts warn as £20m pledge backfires

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Starbucks has not consulted HMRC on its proposal to pay more corporation tax than required by law, and will consider extending the ‘terms’ of its commitment beyond 2014, the company’s managing director in the UK, Kris Engskov, said yesterday.

Tax professionals and anti-avoidance campaigners alike criticised the company’s pledge to pay £20m over the next two years regardless of profitability. HMRC, citing taxpayer confidentiality, was unable to tell Tax Journal how it would deal with a voluntary payment that was clearly not due under corporation tax law.

‘Whether it’s a donation or whatever it is, we’re going to pay UK corporation tax.’

Kris Engskov, Starbucks managing director in the UK

HMRC said in a statement yesterday, when invited to comment on Starbucks’ announcement: ‘Corporation tax is not a voluntary tax and Parliament sets out the rules and rates for businesses to follow. The public expects businesses to pay their fair share and HMRC will challenge, through the courts if necessary, any structures or tax payments that do not comply with the UK tax law.’

It remained unclear last night whether HMRC would be able to accept payments in excess of a company’s true liability. Tax Journal asked HMRC to say whether it would normally accept a company’s payment that was clearly not due.

A spokesman said: ‘For legal reasons we cannot discuss our management of the tax affairs of any named taxpayer. Our treatment of specific payments very much depends on the facts of the case, so it is not possible to generalise.’

Margaret Hodge, chairman of the Commons public accounts committee, said Starbucks’ decision was a ‘first step in the right direction’ and a ‘vindication of people power’. But UK Uncut dismissed the company’s gesture yesterday as ‘a desperate attempt to deflect public pressure’, and tax campaigner Richard Murphy said the move solved nothing. ‘No-one asked you for voluntary donations,’ Murphy wrote. ‘We asked you to pay the right amount of tax in the right place at the right time.’

Amazon and Google said they have no plans to pay any more corporation tax in the UK, BBC Radio 5 live reported today. Both companies have defended their tax arrangements since senior executives were grilled by MPs on the public accounts committee last month.


Some tax professionals responded with dismay to Starbucks' announcement yesterday, warning on Twitter that the move set a ‘dangerous precedent’. Anne Fairpo, a tax barrister, said it suggested that ‘bullying by media and politicians,’ rather than the law, would ‘drive tax’.

Patrick Stevens, president of the Chartered Institute of Taxation, warned that the precedent could create a two-tier tax system. The Daily Telegraph quoted Stevens as saying: ‘If Starbucks is saying its current tax arrangements are all agreed with HMRC, then in commercial terms, it is making a gift to the government, not paying tax. It’s gobsmacking really … Will we have a payment level of companies that sell to the public, particularly with younger customers, and then another level of tax for the rest? It’s shown the flaws in the UK system.’

‘No way to run an effective tax system’

Last month Sainsbury's chief executive Justin King said corporation tax was, to all intents and purposes, an elective tax. ‘Quite simply, companies can choose in which country they’re going to pay their corporation tax,’ he said. Nils Pratley, financial editor at The Guardian, suggested last night that King was being ‘too optimistic’ when he added that consumers, by voting with their wallets, could make a change more quickly than governments.

‘A few managements, like Starbucks', will sometimes judge that the heat, or risk of it, is bad for business – but that's no way to run a fair, transparent and effective tax system, which ought to be the goal,’ Pratley wrote.

‘We will consider extending these terms,’ says MD

Kris Engskov told Laura Kuenssberg, business editor at ITV News, that Starbucks UK was going to pay corporation tax ‘beyond what the law requires’ in 2013 and 2014.

He added later: ‘Beyond that we are going to get into a position where we’re sustainably profitable and we will be able to pay more corporation tax over time. What I will say is, if we are not in a position where we’re making more profit, and therefore paying more material corporation tax, we will certainly consider extending these terms.’

For most people, Kuenssberg said, tax was not a choice. In an extended interview posted on the ITV News YouTube channel, she suggested it was ‘entirely bizarre’ to say ‘we will pay tax on profit’ if there are no profits.

She added that it was ‘not entirely clear’ from HMRC that the company could do this.

Engskov replied: ‘I think it’s unprecedented … but we’ve had plenty of expert advice to say it’s possible. Whether it’s a donation or whatever it is, we’re going to pay UK corporation tax.’

‘You might actually be making a donation,’ Kuenssberg said.

‘The mechanics have not been worked out yet,’ Engskov replied. ‘We haven’t negotiated anything, we’ve not shared this proposal with HMRC.’

It was very clear that ‘[customers] think that we can and should do more’, he said, and the company had ‘a long history of doing the right thing’.

Kuenssberg said: ‘Clearly your customers – and indeed MPs – didn’t think you were doing the right thing. So why have you backed down?’

Engskov said customers had been ‘very supportive’ during what had been a difficult time. ‘But they have questions about what we’re doing and I think today’s action fills in those blanks …

‘What other company is doing something like this? We’re doing this because our customers have had a clear view about what we should do.’

Kuenssberg asked: ‘MPs said you were “immoral”. The fact that you’ve changed your behaviour suggests that you have some sympathy with that view.’

‘I don’t think I’m in a position to say what’s moral or immoral,’ Engskov replied. This was a ‘tough time’ for customers and they expected the company to ‘do more’.

Doing ‘the right thing’ suggested that the company was making a moral judgment, Keunssberg said. ‘Was your tax arrangement immoral?’

Engskov said he respectfully disagreed. The company had not made a profit in the UK ‘in some time’, and had ‘got into some leases that were too expensive for what we do’.