Starbucks has paid no UK corporation tax since 2009
International coffee chain Starbucks has dodged paying corporation tax in the UK by reporting losses for the past three years, although it told its investors it was profitable.
An investigation by news agency Reuters has revealed that Starbucks has paid only £8.6m in tax to the UK in the past 14 years, despite earnings of £3 bn since 1998.
In the past three years alone, Starbucks paid no tax on sales of £1.2bn because it reported losses. If a company is operating at a loss, it is not liable to pay corporation tax.
But according to a four-month investigation by Reuters, the UK branch of Starbucks was effectively paying money to other parts of the business, such as royalty payments for use of the brand.
It has been reported, however, that Starbucks told its investors it was profitable. Executives also told analysts the UK business was "successful", "profitable" and they were "very pleased with the performance", according to the investigation.
Its nearest UK rival, Costa, recorded £377m sales last year, compared to Starbucks's £398m in 2011, and its tax bill came to 31% of profits.
The international coffee chain, which is the second-largest restaurant or cafe chain globally after McDonald's, says it has paid its "fair share of taxes" in full compliance with UK law and no authority had suggested otherwise.
In the financial year ending September 2007, accounts filed by Starbucks's UK unit showed its tenth consecutive annual loss. That November, however, Chief Operating Officer Martin Coles told analysts on the fourth-quarter earnings call that the UK unit's profits were funding Starbucks's expansion in other overseas markets.
Labour MP and tax campaigner Michael Meacher said although Starbucks is not doing anything illegal, its practice is against the interests of the countries where they operate. “It is disgraceful”, he adds.
Richard Murphy, tax expert at Tax Research UK, said that the revelations about Starbucks accounts could be a "game changer" in the way tax avoidance is perceived. He states that although what the company is doing may be legal, it shows that the business does not operate on a level playing field in the UK.
Starbucks pointed out that its overall corporation tax is 31 per cent, compared with an average of 18.5 per cent for multinationals. When it comes to overseas income, however, it paid an average of 13 per cent - one of the lowest rates in the consumer goods sector.
Sadly, this practice is common amongst multinationals as Facebook paid only £238,000 in tax last year in the UK despite making an estimated £175m in sales. Google paid £6m tax on UK revenues of £395m and Amazon had generated more than £7.6bn of sales in the UK over the past three years but paid no corporation tax on the profits from those sales.
The government says it is looking at all avenues for tax evasion and closing down all avenues for tax avoidance, whether it is companies or individuals.