Starbucks and UK Tax: A step not far enough

I’ve just watched Jeff Randall on Sky News tear strips off the UK CEO of Starbucks.

The company says they don’t make any money in the UK.

They have said this for years. The previous CEO, Darcy Willson-Rymer, said the same to me when I met him a few years ago.

But in their reporting statements the company lists the UK as one of the countries outside the UK where they make significant/important ‘earnings’, according to Sky News.

You can’t have it both ways, say the critics. You would declare profits here if you didn’t do transfer pricing.

So the UK CEO has decided, whilst EBay and Amazon try to weather the same corporation tax avoidance storm, to offer to pay something like £20 million in corporation tax in the next two years.

Reuters claims that UK MD Kris Engskov said today that:

“We are making a commitment that we will propose
to pay a significant amount of corporation tax during 2013 and 2014
regardless of whether our company is profitable during these years,”
Starbucks UK managing director Kris Engskov said in a speech.”

The tax authorities here in the UK, according to Sky, have retorted that paying tax is not optional.

The Starbucks UK MD Kris Engskov’s statement was met with some derision on Sky News tonight.

What Starbucks seem to have said is “OK, we realise we are in reputational trouble here, so let’s stop transfer pricing for now, and pay some UK corporation tax”.

Engskov, according to Reuters said:

“”In 2013 and 2014 Starbucks will not claim tax
deductions for royalties or payments related to our inter-company
charges,” he told an audience at the London Chamber of Commerce.”

doing so, Starbucks would contribute about 10 million pounds in tax
each year, he said, meaning that the company would pay more than is
required under British tax law.”

I can understand why Starbucks have done it this way. They want to do what PR people refer to as “getting out in front of the issue”.

But it surely could have been handled a little better.

For example, why not announce a commitment to permanent changes? Make a decision to stop transfer pricing.

A two year committment sounds like they are waiting for the storm to die down. Folks on Twitter tonight are not impressed.

I don’t think the storm will die down.

As growth slows further, “lost decades” loom in Europe, tax is staying on the agenda.

A permanent change would have been a big PR win for Starbucks, given how the other companies are dithering in their responses.

The old cliche is true: You can’t have your cake, and eat it too.

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