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Bill Jamieson: Starbucks stirs up a taxing issue

Starbucks is the latest multinational to become a public enemy. Picture: PA

Starbucks is the latest multinational to become a public enemy. Picture: PA

BILL Jamieson reserves his judgment on the under-fire coffee chain until all the evidence and counter-arguments are in

I begin with a declaration of interest. Over the past few months, no longer having an official place of work or registered office, I have had cause to use temporary accommodation in numerous streets. I can sip coffee, read the papers, check up on phone messages, work on my laptop, tweet away on Twitter, gossip on Facebook, fire off e-mails, swap gossip with pals and, once I’ve settled, research my articles.

Barely have I got half way through this list than I’m hoping someone else wanders in from whom I can cadge the next café latte, preferably large and sprinkled with chocolate shards.

Welcome to Starbucks. It is, however, the latest public enemy, and joins Google, Facebook, Vodafone and Barclays as a target of tax campaigners. Its tax bill, it seems, is not just small semi-skimmed, but non-existent.

I should thus withdraw my custom and encourage others to do so. But how much corporation tax is “fair” corporation tax? How do we know when companies are avoiding (which is legal) and when they are evading (which is illegal)? And should we boycott companies that pay low or no corporation tax?

I should perhaps explain that this campaign on corporation tax is not the same as the campaign to bring corporation tax down. This is a perfectly fair and legal activity pursued by the UK government on concerns that we are overly taxing enterprise and discouraging investment and job creation. The main rate of corporation tax has been lowered from 28 per cent in 2010 to 26 per cent in 2011, to 24 per cent this year and to 23 per cent in 2013.

And it should certainly not be confused with the Very Low Corporation Tax campaign run by the SNP government, which has big ambitions to bring corporation tax down to the Irish level of just 12.5 per cent. In this way, it hopes to attract more branches of Starbucks and many other companies besides, so that many more of us are paying income tax and National Insurance. Indeed, the freedom to slash corporation tax is one of its key reasons that it is championing an independent Scotland.

So is this the First Minister I see bustling towards me through the Starbucks tables with my giant café latte and generous cream topping dusted with chocolate shards?

Dream on, I sense. The issue here is not about what a “fair” rate of corporation tax should be but that, whatever the rate agreed, it should be paid by companies on qualifying taxable profit, be you ever so big. Especially if you are big.

Starbucks is in the firing line for having reportedly paid just £8.6 million in corporation tax in the UK over 14 years and paid nothing in the last three years. Its accounts showed that its UK arm made a £33m loss last year despite sales of £398m. It filed losses of £14m in 2010 and £52m the year before.

There is no evidence that HMRC has made a corporation tax assessment or issued a corporation tax demand or issued a warning over non-payment. And Starbucks, I should add, vigorously refutes the allegations. “We have paid and will continue to pay”, said a spokesman, “our fair share of taxes in full compliance with all UK tax laws, as we always have. There has been no suggestion by any authority that we are anything but compliant and good tax payers.”

Oh for some clarity on any – and all – of these issues. Tax accounting is fiendishly complex. Companies employ teams of accountants to mitigate their tax liability – a perfectly legal activity. If it is an international company, it has to take care to apportion profits correctly. But what constitutes a “correct” profit can be, for an international company, a question capable of more than one answer.

For example, Starbucks’ UK unit and other overseas operations have to pay a royalty fee to other parts of the business for the use of its brand and business processes. It also has to allocate some funds generated in the UK to other subsidiaries in its supply chain: Starbucks buys coffee beans for the UK through a Swiss-based subsidiary, and the beans are then roasted by another based in Amsterdam. Tax authorities in the Netherlands and Switzerland require Starbucks to allocate some profits from its UK sales to its Dutch roasting and Swiss trading units.

If only we could be sure how Starbucks has come to have nul points on its UK corporate tax ledger.

A key point at issue is whether Starbucks could be telling such different stories to different audiences – one to tax officials and another to investors. Investors would have been reassured to hear that the UK business was profitable and performance was pleasing, while HMRC was told that profits were so low or non-existent that no tax was due.

However, open up any report and accounts of a major company and you will find several lines indicating profit: there’s trading profit, operating profit, profit before interest and tax, profit before extraordinary items. So to which line of profit might Starbucks have been referring when it told investors the UK business was “profitable”?

And if HMRC has found there to be taxable profits, where is the assessment and when was the demand issued?

Alternatively, might Starbucks have done what hundreds of thousands of businesses in Britain routinely do, which is to arrange its affairs so as to minimise its tax liability in a perfectly fair and legitimate manner?

There has long been a view that the UK tax system is too complex by half, that this complexity works to the advantage of multinational firms which can deploy big accounting departments and smart tax lawyers to fight their corner. The small coffee shop has nothing like these resources.

But then, the small coffee shop would not be generating anything like the business of Starbucks – or the thousands of jobs it has created in the UK, or the VAT and National Insurance revenues. It has grown to the size it has – and only within the past year has pledged itself to expand further in the UK – because it attracts millions of customers. Its coffee might not be to everyone’s taste. But it has made itself hugely attractive for its convenience 
and readiness to entice today’s casual customer with free wi-fi, work-friendly tables in many 
outlets and a power sockets for our laptops.

I am not a wealthy person, like the former Labour provost of Glasgow who writes in these columns. I do not feel compelled to drive a Mercedes. But I do appreciate the small benefits life can offer in my corner café. And I would certainly like to know more before joining the Boycott Starbucks brigade. Or boycotting Facebook, Google, Barclays, Amazon and Vodafone for that matter, over a business tax that most of us want to see cut.

 

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