Global coffee brewer, Starbucks Corporation (NASDAQ:SBUX) recently said that it was compliant with tax policies, but according to its latest disclosure on tax payments in the U.K., the company finds itself in trouble, as irked MPs, and pressure groups are now calling for an inquiry into the coffee maker’s tax affairs. The coffee chain revealed that it paid a total of £8.6 million from £3 billion worth of sales, since it opened it’s first store in the U.K. in 1998.
The disclosure also indicates that Starbucks Corporation (NASDAQ:SBUX) has not paid any taxes over the last three years, for its U.K. outlets, which according to Reuters research, are estimated to be 735 in total. Apparently, the Coffee maker has been reporting losses from its U.K. operations, which contradicts the remarks by the company’s U.S. executives to investors emphasizing that its U.K. business unit has been profitable over the period.
According to a report published by Simon Neville in The Guardian, the contradicting reports from the company are indicative of its extensive use of tax avoidance used by multinationals, which load their subsidiaries with lots of debts from subsidiaries in other parts of the world with lower tax thresholds.
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The report notes that in 2007, the chief operating officer, Martin Coles, expressed to analysts that Starbucks’ U.K. business was very pivotal in funding the company’s expansion plans in other countries, which indicates that the U.K. segment was profitable altogether.
“The chief finance officer at the time, Peter Bocian, added that the U.K. division enjoyed operating profit margins of almost 15% that year, equivalent to nearly £50m in profit,” notes Neville.
Nonetheless, accounts filed with Companies House showed a 10th consecutive annual loss, which indeed indicates that the company did not comply with the rule that requires companies to present accounts that reflect the true performance of the business.
Michael Meacher, the Labour MP for Oldham, West, and Royton, who has campaigned against companies that use tax avoidance techniques, is quoted saying, “HMRC should be having a look at this, especially since they keep saying there should be a crackdown. This has been going on for years, and there are many companies involved”.
“The fact they have paid 0.3% tax on their turnover is utterly scandalous. If they didn’t think they could get away with it, they wouldn’t dare do it”.
In a response, HMRC said:
“For legal reasons, we cannot comment on the tax affairs of individual businesses, but we make sure that multinationals pay the right tax to the U.K. in accordance with U.K. tax law.
“Our tax rules, combat tax avoidance and we employ specialist tax professionals to ensure that multinationals play by the rules.”
Starbucks Corporation (NASDAQ:SBUX), is not the only U.S multinational accused of this practice; in some of our articles, we have featured technology companies, which have been involved in cash movement practices, to tax friendly countries, in an attempt to avoid tax burdens.
Large tech multinationals including Hewlett-Packard Company (NYSE:HPQ), Apple Inc. (NASDAQ:AAPL), Oracle Corporation (NASDAQ:ORCL), and Microsoft Corporation (NASDAQ:MSFT) have been accused of using various measures to balloon their cash accounts.