Starbucks is planning to change the way it operates so that it will end up paying corporation tax in the UK.
Despite being one of the biggest competitors and having almost one-third of the UK coffee shop market, Starbucks has paid corporation tax only once in the past 15 years. Corporation tax is paid by foreign companies on profits made in the UK, while UK-based companies pay corporation tax on their taxable profits wherever they are made.
In a report published on Monday, Public Accounts Committee chairwoman Margaret Hodge said HM Revenue and Customs (HMRC) needed to be “more aggressive and assertive in confronting corporate tax avoidance”.
Starbucks, for example, sold nearly £400m worth of goods in the UK last year, but paid no corporation tax at all, because it transferred some of the money to a sister company in the Netherlands in the form of royalty payments, bought its coffee beans from Switzerland and paid high interest rates to borrow money from other parts of the business. This is entirely legal under UK law and has left some asking why they were allowed to do this in the first place.
Starbucks currently pays 4.7% of its sales to a sister company in the Netherlands, and plans to continue the payment, but will no longer use it to reduce its tax liability.
The Public Accounts Committee’s report also criticised Amazon and Google, neither of which has paid much corporation tax.
If Starbucks decides to go ahead with the change it will be announced on Wednesday ahead of Chancellor George Osborne’s Autumn Statement.
The Treasury has announced it will provide HMRC with £77m of new money to help it track down wealthy individuals and companies who tried to avoid paying tax. It said it expected to recoup £22bn a year as a result of the measures announced.
The autumn statement could be called a ‘mini budget’, but in practise, it’s more information than fiscal decisions being made by the government, although there will updates on the government’s plan for the economy. It will also provide information on the state of the economy and forecasts on growth in the UK from the Office of Budget Responsibility.
It has recently been reported that George Osborne has dropped the idea of cutting all housing benefits from under-25’s due to lack of coalition agreement and instead it will feature on the 2015 manifesto for the Conservatives. What quite a lot of commentators agree upon when predicting what should be in the statement is to deliver big infrastructure projects that will although in the short-term won’t help the economy a great deal, in the medium and longer term should help return the country to growth. This boost in infrastructure spending, however, would need to be supported by the new business bank coming online as soon as possible, changes to employment law, and simplifying the tax system. One contentious issue is high-earners; Mr Osborne has said recently that he will target high earners instead of simply cutting away at the welfare system yet he only plans to target rich pensioners, which seems pointless because the high earners who are of working age seem to have again got away scot-free. We need to restore balance to the tax system, bringing the gap between rich and poor down, by targeting the rich and making sure that they pay. One idea that would be very useful is setting a limit to how much the top get paid in relation to the bottom, i.e. the CEO can only be paid 20 times what the lowest earner gets paid including expenses, so if the lowest earner is on £10,000 then the CEO can only earn £200,000 which would shake up the business world and force them to accept the need to do more to support the lowest earners in their company.
As of yet we don’t know for certain what will be in the Autumn statement and it will be interesting to see on Wednesday 5th of December what he announces.