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Starbucks reviews UK tax arrangements

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Starbucks UK has said it needs to do more to ‘build public trust’ after the recent criticism of its tax arrangements. The company said, hours before publication of a highly critical Commons public accounts committee report on tax avoidance, that it was ‘in talks’ with HMRC and HM Treasury about its tax affairs.

The Times quoted a spokesman as saying that more details of the talks would be released later this week. ‘Starbucks is committed to the UK for the long term and we have invested more than £200m in our UK business over the past 12 years, he said.

‘Starbucks has complied with all the tax laws in this country but has regretfully not been as profitable as we would have liked. We have listened to feedback from our customers and employees, and understand that to maintain and further build public trust we need to do more.’

Starbucks had told the PAC that it had made a loss for 14 out of the 15 years it had been operating in the UK. ‘We found it difficult to believe that a commercial company with a 31% market share by turnover, with a responsibility to its shareholders and investors to make a decent return, was trading with apparent losses for nearly every year of its operation in the UK,’ the PAC said.

That evidence was ‘inconsistent with claims the company was making in briefings to its shareholders that the UK business was successful and it was making 15% profits in the UK’.

Starbucks was ‘not prepared’ to break down a ‘4.7% payment for intellectual property’ that the UK company paid to a Netherlands-based group company. The PAC was ‘sceptical’ that a 20% mark-up paid by the Netherlands company to a Swiss-based group company on its coffee buying operations –with a further mark up before it sold to the UK – was reasonable.

The PAC added: ‘Starbucks agreed that it had a special tax arrangement with the Netherlands that made it attractive to locate business there, which the Dutch authorities asked Starbucks to hold in confidence, and that Switzerland offers a very competitive tax rate. In addition, there is an intercompany loan between the US Starbucks business and the UK Starbucks business over a period of time with the interest rate set at higher rate than any similar loan we have seen. We suspect that all these arrangements are devices to remove profits from the UK to these areas with lower tax.’

Starbucks CEO Howard Schultz said in a message posted on the group’s UK website in October, before the PAC hearing, that Starbucks ‘adheres to both the letter and spirit of the law’ in every country in which it does business.

He said differences between US and UK accounting rules meant that there had been instances when ‘we have communicated to shareholders that the UK has been profitable, albeit a small profit, while at the same time in the UK we had no taxable income to report, and thus no corporate income taxes to pay’.