Starbucks in talks with HMRC over paying more tax but will coffee prices soar?

After widespread criticism over multinational companies avoiding corporation tax in the UK, Starbucks has come forward, admitting that they ‘must do more’ and are currently in talks with HM Revenue and Customs and the Treasury over how much UK tax it pays. And it comes just in time as Chancellor George Osborne announced today, that he would be cracking down on the amount of tax multinational companies are actually paying. Osborne has pledged more money for authorities in the UK to investigate corporation tax avoidance and so far, out of the three big named companies touted in the press recently, those being Amazon, Google and Starbucks, only the coffee chain has listened to government concerns.

In a statement, Starbucks said: “We have listened to feedback from our customers and employees, and understand that to maintain and further build public trust we need to do more. As part of this we are looking at our tax approach in the UK. The company has been in discussions with HMRC for some time and is also in talks with The Treasury.” Starbucks has more than 700 outlets over the UK and BBC business correspondent Theo Leggett said the coffee company reported sales of nearly £400m in the UK last year, but paid no corporation tax at all. Leggett said: “Much of the money it earns in this country is transferred to a sister company in the Netherlands in the form of royalty payments, leaving the UK division to report regular annual losses.”

The way multinational companies avoid paying corporation tax in the UK is that they sign up to a European agreement on taxation, which means they can effectively look at any country within the EU and decide which one has the lowest form of taxation. They can then base their operations in that country, and if the majority of the decision making takes place in that country, for example Luxembourg, which has a very low corporation tax rate, despite selling high volumes in the UK, they still avoid a high tax bill. This is not illegal, but it is perhaps a way of avoiding paying high rates of tax that British companies cannot do.

Corporation tax is the tax paid by foreign companies on profits they make in the UK and despite Starbucks owning a third of all coffee shops in the UK, they have only paid this corporation tax once in fifteen years. It appears that public pressure, in a highly competitive market, has forced the coffee giants to rethink their taxation policy. The coffee market is greatly fought over, with independent coffee houses making up a large proportion of all sales in the UK. It is thought that because Google and Amazon do not have such natural competitors, that they will be more resistant to change.

However, as public pressure has shown, by voting with your feet, it is possible to force this multinational companies to pay the correct amount of corporation tax. So if you disagree with the amount of tax these multinational companies pay, simply do not purchase goods from Google or Amazon until they start paying the right amount.

It is thought that an estimated £77million of government funds will be released to the HMRC in an attempt to help them target wealthy individuals and companies who avoid paying tax. It is expected however, that these measures will bring in around £22bn a year.

Whilst we applaud the move taken by Starbucks today, we hope that they will not stick the extra tax onto the price of a latte…

Source: BBC News

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