Starbucks tax avoidance: HMRC to face parliamentary committees

Two committees to question officials about how Starbucks was able to pay no UK tax on £1.2bn of sales since 2009

Two parliamentary committees are due to question tax officials about how Starbucks has been able to avoid paying tax on £1.2bn of sales since 2009.

MPs said that reports of a Reuters investigation showing Starbucks had been telling investors its UK business was highly profitable, while telling the authorities it was lossmaking and therefore not liable for tax, undermined public trust in the tax system.

Margaret Hodge, the Labour chair of the public accounts committee, is one of several MPs who have called for Her Majesty's Revenue and Customs to launch an investigation into Starbucks' tax affairs.

Hodge said the head of HMRC and other officials would be testifying to the committee next month and there were "questions to answer" about Starbucks' practices.

There is no evidence that Starbucks has engaged in any kind of wrongdoing, and the company said it paid its tax in Britain to the letter of the law.

Defending the company against public anger at the news of its tax bill, Starbucks' UK managing director Kris Engskov issued a lengthy post on the company's blog.

In an initial version he wrote: "The most important thing to understand is that Starbucks does pay tax in the UK. Indeed over the last three years we have paid over £160m in various taxes, including Pay As You Earn for our 8,500 UK employees, national insurance and business rates."

The post was subsequently changed to remove the reference to PAYE, which is a tax on employees' earnings, not on businesses, but the figure of £160m remained. The company said £87m of that was VAT – which is a tax on consumers.

Engskov's post added: "The truth of the matter is, the one tax that has been debated in the media, corporation tax, is based on the profits we make in this country – and regrettably we are not yet as profitable as we'd like to be. Is our ambition to be much more profitable, and therefore pay more corporation tax? Absolutely right, and that is why we are making long-term investments in the UK, creating new jobs, opening new stores and delivering new and innovative products for our customers."

Engskov glossed over Starbucks' contradictory official statements on the UK business. According to the original Reuters investigation, in 2007, the company's chief operating officer, Martin Coles, told analysts in a fourth quarter results presentation that the UK unit's profits were funding Starbucks' expansion in overseas markets. A year later, after filing a £26m loss in the UK, Starbucks' chief executive, Howard Schultz, told investors the business here was so successful he planned to apply the lessons to the company's biggest market, in the US.

The chief financial officer, Troy Alstead, also called the UK business "profitable" in 2009 after accounts revealed a record £52m loss, Reuters said.

George Mudie, the chair of the Treasury subcommittee, said he also planned to question HMRC officials about Starbucks as part of their regular appearance before the committee.

He said he hoped the subcommittee could hear from Starbucks executives, although he noted he would need broader subcommittee support to call the company to testify.

Labour MP John Mann, a Labour MP on the subcommittee, said he would like it to hold an investigation focusing on Starbucks, but Mudie said this was unlikely.

HMRC does not comment on individual taxpayers and rejected any challenge to its efficacy. "We make sure that multinationals pay the right tax to the UK in accordance with UK tax law," it said in a statement.

Tory MP Steve Baker also called for an inquiry. "I am a highly free market person but what I want is simple transparent tax law that is actually obeyed … There are some serious questions to answer here," he said.

Taxpayer confidentiality means HMRC would not be able to confirm an investigation even if it did launch one.

Baker and Hodge said the government could get around this and reassure the public the matter was not being ignored by confirming in parliament that an HMRC investigation was taking place.

Starbucks declined to say whether it was considering any changes to its accounting practices, but said it was "totally committed to the UK".

"Starbucks pays and will continue to pay our share of taxes in the UK to the letter of the law," said Engskov.

He went on to note Starbucks' contribution to the UK economy as an employer and as a customer for farmers and cake makers.

Staff and agencies

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