Starbucks Tax Row: £10m Climbdown

Starbucks has vowed to pay more corporation tax than it is obliged to as the coffee chain denies hiding profits from the UK taxman.

The company's UK managing director Kris Engskov told Sky News that the decision to "take action" followed anger from its customers in recent weeks.

Starbucks will now pay around £20m in corporation tax over the next two years, after paying nothing last year.

The U-turn comes after the Government pledged to crack down on tax avoidance after public outrage over how little some multinational companies contribute to the UK Exchequer.

Mr Engskov told Sky's Jeff Randall: "We are paying corporate tax and we are going to do that beyond what is required by the law and whether we make a profit in the next two years and I think that is what we should do.

"We have reacted to our customers... We have seen that doing business responsibly is good for the bottom line and this is a good example of that."

In the same interview, he said the US coffee giant had not been profitable in the UK since it brought its brand to Britain 14 years ago.

And he admitted their 2011 report and accounts may be wrong when they referred to the fact that the UK was making a "significant portion of the net revenue and earnings of our international operations". 

This could mean major penalties for the company.

Since arriving in the UK, Starbucks has paid just £8.6m in corporation tax despite taking billions of pounds in revenue from its shops, which now number more than 750.

The low bill has been explained by the practice of transfer pricing, which involves charges being made by companies in the same group based in different jurisdictions, with the effect of depressing profits in the higher-tax jurisdiction.

In Starbucks' case, that relates to the royalty fee paid to a sister company in the Netherlands for the right to use its brand and coffee recipe.

While the previous tax arrangements were legal, its actions were called into question amid a wider debate about tax avoidance which has also engulfed the likes of Amazon and Google.

The companies were accused of "immorally" minimising UK tax bills in a damning report by the Public Accounts Committee of MPs.

Its chairman, Margaret Hodge MP told Sky News the development was a "step in the right direction" which had been brought about by "people power."

The firm has argued that its UK operations already inject £300m into the UK economy annually.

Mr Engskov, speaking earlier in a speech to business leaders, admitted that the "emotion" surrounding the tax payments had "taken us a bit by surprise".

"Since we started doing business here, we have always organised our tax affairs according to the letter of the law - always," he said.

"We have used existing and agreed-upon measures to pay what is expected of us, but not more - just as most companies do and I am sure many of the people here today run their businesses in similar ways."

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

Mike Lewis, tax justice policy adviser for charity ActionAid UK,said: "Starbucks' tax back-down proves that companies do have a choice about where and how they pay taxes."

Other critics suggested the country should wait to see the colour of Starbucks' money.

Hannah Pearce, a UK Uncut spokesperson said: "Offering to pay some tax if and when it suits you doesn't stop you being a tax dodger.

"Starbucks have been avoiding tax for over a decade and continue to deny that it paid too little tax in the past. Today's announcement is just a desperate attempt to deflect public pressure.

"There's no money yet, and hollow promises on press releases don't fund women's refuges or child benefits."

An HMRC spokesman said: "Corporation Tax is not a voluntary tax. The public expects businesses to pay their fair share and we will challenge, through the courts if necessary, any structures or tax payments that do not comply with the UK tax law."