Starbucks promises to pay more UK tax

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Starbucks promises to pay more UK tax

3News NZ

Starbucks has been criticised for not paying enough tax (Reuters)

Starbucks has been criticised for not paying enough tax (Reuters)

Starbucks bowed to mounting pressure over its tax affairs in Britain and revealed Thursday that it would pay about 10 million pounds ($16 million) in each of the next two years.

Having been slammed by the country's lawmakers of "immorally" avoiding tax, Starbucks' UK managing director Kris Engskov said the firm had agreed to pay more than required by law.

"With the backdrop of these difficult times, in the area of tax, our customers clearly expect us to do more," he told the London Chamber of Commerce.

The Seattle-based coffee company has 700 British outlets, but has paid just 8.6 million pounds ($13.8 million) in corporation tax in 14 years. Starbucks says this is due to a process involving paying royalties to its European headquarters in the Netherlands.

The company hasn't done anything illegal. Companies operating in Europe can base themselves in any of the 27 European Union nations, allowing them to take advantage of a particular country's low tax rates.

Earlier this week, Parliament's Public Accounts Committee criticised multinationals such as Starbucks, Amazon and Google for "using the letter of tax laws both nationally and internationally to immorally minimise their tax obligations."

Starbucks, which also has been the target of demonstrations by the protest group UK Uncut, announced this week that it was reviewing its tax approach.

Engskov said the company was proposing "to pay a significant amount of corporation tax during 2013 and 2014 regardless of whether our company is profitable during these years."

He estimated that would amount to "somewhere in the range of 10 million pounds in each of the next two years."

Labour lawmaker Margaret Hodge, who chaired the parliamentary committee, said Starbucks' change of heart was proof that "people power works."

Earlier this week, UK Treasury chief George Osborne earmarked an extra 77 million pounds ($124 million) to clamp down on "offshore evasion and avoidance by wealthy individuals and by multinationals."

AP

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Comments

9/12/2012 4:36:12 p.m.

Mike wrote:

Take an example closer to home.

ANZ/Westpac profits made in NZ. The NZ tax rate is 28% for businesses, while the Aussie business tax rate is 30%. We have the left loonies claiming that if ANZ pays 28% tax in NZ on profit, they haven't paid enough as they should have been paying 28% on revenue in their new found idiocy of revenue=profit.

Forgetting the revenue=profit. They then claim that Austrailia is being robbed if ANZ/Westpac doesn't pay an additional 2% income tax (2% on top of 28% to 30%, is like 7% higher tax!) for it being an Aussie business, while its perfectly legal under NZ/Aus and everywhere else in the world to use the tax rate of the country where the profit was made.

There is some flex in making profit, as if Australia Wespac/Anz charge their NZ banks like $1 billion, this will reduce the profit in NZ by $1 billion and raise their profit in Aus by $1 billion (converted currency). This doesn't change the profit of the multinational, but does move the profit between coutries. So a multinational business can move profit around a little (typically to their host nation), and they do so to lower their tax they actually pay while neither evading or avoiding tax.

So when Peters keeps telling us Aus is moving NZ profits overseas, he is basically lying as the banks will chose to leave bank profits in NZ and pay that little less tax (28% vs 30%) than to move the profit back to Aus for 30% tax, then re-invest from Aus to NZ.

8/12/2012 12:54:21 p.m.

Mike wrote:

What does this mean in reality without the political BS?

Paying 40 mill means that starbucks will be leaving 160 mil profit in the UK where they previously moved it to the netherlands.

Starbucks were already paying tax, and at the correct rate, just the UK has above average tax rates while the netherlands is lower, and moving profits to the netherlands made more money.

How much?

UK buiness tax rate is currently 25% (even lower than our own 28%) while the netherlands business tax rate is 20%. So given that they leaving 160 mil profit in the UK to be taxed @ 25% to pay 40 mil tax, starbucks currently moving the profit to the netherlands would be paying 20% tax, or 32 mil, so will pay 8 mil more in tax. This isn't not paying tax, but different countries in the EU havign different tax rates. If you had the ability to pay $40 for something or $32 for the same thing, of course you would pick the cheaper. If the UK would allign its taxes with the netherlands, or the netherlands would allign its taxes with the UK, then the problem would be solved as there would be no benefit to move the profit then.