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Tax avoiding coffee

The coffee shop giant Starbucks has suffered some finger pointing the last couple of days. Stories about how the international company’s UK division has managed to escape the taxman albeit it make good sales.

“A Reuters investigation uncovered apparent discrepancies between what Starbucks was telling US investors on one hand and what it was declaring to HM Revenue and Customs.” The Observer wrote on Sunday. According to the newspapers, Starbucks made almost similar sales last year as their native rival Costa Coffee – £398m and £377m respectively. The costs of the companies however, was another story. Starbucks reported costs of £319m, almost three times as much as Costa. As a result, Costa can show a tax charge of £15m, while Starbucks was charge a cent in tax.

Starbucks officials explains the high costs by the sourcing roasted coffee from a sister company in Holland and how some profits therefore must be reallocate back to Amsterdam. Costa operates their own roastery in south London. The more important factor however is that the payment of £26m in “royalties and licence fees” from the UK branch of Starbucks to other parts of the group. Kris Engskov, the head of Starbucks UK, defends the practice by pointing out that the royalties are levied at the same percentage of revenues anywhere in the world Starbucks operates. What is critical, is that he can nit clarify wether these payments goes straight to a tax haven or finds it’s way back to HQ in Seattle. Pre-tax charges such as these royalties and fees is the main reason why the exchequer has only been able to collect £8.3m since Starbucks established itself in the UK in 1998, despite sales of more than £3bn in that period.

Last Friday, Starbucks chairman Howard Schultz gave his first public comments on the issue after being pressed by Reuters – at the opening of the company’s first branch in India. He said “We will absolutely comply with any government inquiry with transparency and respect.” Surely MPs should demand a clear explanation from Starbucks and other multinational companies that might be loopholing away from the taxman.

Maybe something to take into consideration next time your belly screams for a Cappuccino.