© The Financial Times Ltd 2015 FT and 'Financial Times' are trademarks of The Financial Times Ltd.
December 6, 2012 8:19 pm
Starbucks’ groundbreaking decision to volunteer higher tax payments in the UK was a response to a “loud and clear” message from customers that they expected a bigger contribution to the Treasury.
US investors were likely to accept the logic behind the move, according to Nell Minow of GMI Ratings, a US governance research group. “[Starbucks are] avoiding a boycott. It’s just a cost of doing business.”
She added, “It’s not unusual for a company to pay a fine and admit no guilt. In fact, it’s more the practice because it looks like they’re being generous rather than being pitchforked into it.”
But Starbucks’ decision angered activists, who questioned whether it would defuse public pressure.
UK Uncut, a grass roots group that targets companies it accuses of tax-dodging, said it would go ahead with plans to occupy 40 Starbucks stores across the country at the weekend to highlight the impact of government cuts.
UK Uncut said, “Offering to pay some tax, if and when it suits you, doesn’t stop you being a tax dodger. Today’s announcement is just a desperate attempt to deflect public pressure.”
Tax specialists voiced doubts about the effectiveness of the move, which has not yet been accepted by Revenue & Customs. Unlike the US, where the Treasury was able to receive $7.7m in voluntary contributions over the past year, there is no clear mechanism for the UK Treasury to receive voluntary payments.
In a statement, the Revenue said: “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.”
Heather Self of Pinsent Masons, a law firm, said: “It sets an odd precedent for a company to pay more than the right amount of tax.”
John Whiting of the Chartered Institute of Taxation said the difficulties of paying more than the required amount of tax had been demonstrated during a row over avoidance by MPs with second homes a few years ago when MPs offered to pay extra capital gains tax.
By volunteering the payments, Starbucks has not accepted the “transfer pricing” arrangements it used for intercompany payments within the group were too aggressive as a tax management strategy. The company said its decision on the figure of £10m a year for at least 2013 and 2014 was arrived at by rounding up its deductions and applying the relevant rate.
It said it would not be claiming deductions for sister company royalties, coffee, interest on intercompany loans, capital allowances or for losses it carried forward for two years or until it made a profit.
The intercompany transfer pricing payments have been central to the criticisms aimed at Starbucks in recent weeks.
Critics highlighted the royalty payments it made to its Netherlands operation, which left the UK business reporting regular losses and paying just £8.6m in corporate tax since 1998, despite £3bn of sales.
Starbucks’ decision barely registered in the stock market, where the company’s shares rose 5.7 per cent on Thursday as analysts released positive reports on the company following a meeting with investors in New York on Wednesday.
On Thursday Starbucks reiterated that its lack of profitability in the UK was because of high rents and “competitive pressures”.
Advisers said other companies would be closely watching the impact of Starbucks’ move, although Ms Minow said she expected Amazon and Google – two other companies criticised by MPs – to ride the controversy out.
However James Henderson, chief executive of Bell Pottinger, a public relations firm, said no business should assume that the spike of interest in the amount of tax companies pay would blow over.
Please don't cut articles from FT.com and redistribute by email or post to the web.
Sign up for email briefings to stay up to date on topics you are interested in