Starbucks 'makes a mockery' of tax system

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Yesterday the American coffee giant bowed to public and political pressure by announcing plans to voluntarily pay over £20m in corporation tax to HMRC over the next two years

However, the tax profession has reacted angrily to the proposal, claiming it “makes a mockery” of the tax system.

Chris Morgan, head of tax policy at KPMG, said, “I think what they've said is absolutely extraordinary and really does change the tax landscape. It is the first time I have seen public opinion make a company change its mind.

"This is clearly a voluntary decision despite taxes being collected according to law and principles. HMRC might be very nervous about how things are done because their job is to collect the right amount of tax and they don't want to overcharge people,” added Morgan.

Conor Delaney, tax lawyer at Milestone International Tax Partners, said, "You have a fundamental principle that you can only be taxed by clear legislation and yet you have this process where a company is hauled up and publicly embarrassed and blackmailed into volunteering more tax." 

The announcement followed news earlier this week that the coffee giant was considering changing its accounting practices.

Starbucks conceded that against “the backdrop of these difficult times, in the area of tax, our customers clearly expect us to do more.”

The company's UK managing director Kris Engskov said, "Having listened to customers and to the British public, Starbucks in the UK will be making changes which will result in the company paying higher corporation tax in the UK - above what is currently required by law.

"Specifically, in 2013 and 2014 Starbucks will not claim tax deductions for royalties or payments related to our intercompany charges."

The statement continued, "In addition, he is announcing a commitment that Starbucks will propose to pay a significant amount of corporation tax in the UK during 2013 and 2014 regardless of whether our company is profitable during these years."

HMRC has yet to approve the strategy outlined by the US company.

The chain is one of several multinationals to have come under increasing public scrutiny over the amount of tax paid in the UK, culminating in the Public Accounts Committee report on Monday which described the figures paid as an “insult”.

Raymond Doherty

 

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  • Comment by D James

    Starbucks' decision does make a mockery of the tax system, but only because it is worthy of mockery. At present our tax legislation allows multinationals to pay tax when and where they want and it needs changing so they cannot use internal accounting to move taxable profits out of the country.