Confusion continues to rein over Starbucks' tax affairs, after weekend news suggesting the company – which has paid UK corporation tax of just £8.6m since 1998 – has now been shamed into paying HMRC £5m "despite the business making a loss of £30m". It's worth spending a second to unpick what has really happened.
In the wake of an investigation into Starbucks' UK tax affairs by Reuters in October, the coffee chain found itself in the eye of a building storm over big business tax avoidance. Within weeks the company was facing calls for a boycott, and by the start of December — one of the busiest months for coffee shops — UK boss Kris Engskov issued what appeared to be a climb-down statement – "a commitment … to pay a significant amount of corporation tax during 2013 and 2014 regardless of whether our company is profitable" he said.
Guidance from Starbucks said the taxman would get £10m in 2013 and in 2014. That prompted a chorus of indignation — saying it was a very bad thing for tax contributions to operate, in the words of Treasury chief secretary Danny Alexander, "like the church plate".
In truth, however, they had all over-interpreted Engskov's commitment. While the Starbucks may have appeared to give the impression that a voluntary overpayment would be made to HMRC, a close reading of his words reveal no such promise.
Unwrapping the layers of spin from his original remarks and what EngskovWhat he actually pledged is way more modest. It is this: for 2013 and 2014 Starbucks would make a taxable profit because it would amend a series of controversial intra-group transactions which had for years sapped profits from the UK company. These include royalty payments for use of the brand, certain interest charges and wholesale coffee supply deals.
This is the source of the latest contribution to HMRC coffers, which is expected to be hinted at in Starbucks UK's historic accounts published this week. It is an absolute fiction – and one the company has done nothing to discourage – to suggest these tax payments are being made without an obligation arising.
To be clear: Starbucks is now profitable — though we may not seen the formal accounts to confirm it for another 12 months. We know it is because it says it has paid £5m in tax. And we know the reason it has bounced into profit is because it has suspended its controversial profit-shifting deals – for now, at least.