Starbucks opens negotiations with HMRC to start paying more UK tax

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Starbucks (NasdaqGS: SBUX - news) has opened negotiations with Her Majesty's Revenues and Customs to change its financial structures so that it starts paying tax in Britain.

Following weeks of controversy after it was revealed that the American coffee chain had only paid £8.5m in corporation tax since it launched in Britain in 1998 despite sales of £3bn , sources revealed that the changes would mean it paying tax "pretty quickly".

Figures of how much it could pay have not been made available but it would be likely to be in the tens of millions of pounds a year. Last year Starbucks (HKSE: 4337.HK - news) made £398m in revenues and paid no tax.

The company has told HMRC that it will change the way it offsets payments it makes to Dutch and Swiss divisions of the company, meaning it will create a profit in the UK and therefore pay tax.

Up until now, Starbucks has insisted that its UK business does not make a profit because of the high rents it pays for its shops.

The coffee chain also uses a number of perfectly legal mechanisms to mitigate its tax payments. It pays a 4.7pc licensing fee to the Netherlands for image rights and use of the company's coffee technology.

It also buys its coffee from a Swiss division of Starbucks which charges a 20pc premium on the product. Corporation (BSE: CORPBANK.BO - news) tax in Switzerland is 12pc. In the UK it is 25pc.

Critics have said that the figures are high compared to other American businesses that operate in the UK.

McDonald's and Burger King (NYSE: BKC - news) pay a 5pc premium while Wal-Mart, owner of Asda, charges its UK arm 0.6pc. All three companies make profits in the UK and pay corporation tax.

Sources close to the company said that although Starbucks was operating within the rules the issue had now become a question of how much their customers trusted them.

"People look at all the shops, at all the coffee being sold and they think the company is electing not to pay corporation tax," said one source close to the company. "The mood has changed and Starbucks needs to react."

The issue of tax avoidance will be at the top of the political agenda again this week with the release of what is expected to be a highly critical report by the Public Accounts Committee.

During hearings before the committee's inquiry into the issue, Margaret Hodge MP, chairman of the PAC, accused Starbucks of "exporting its profits to minimise your tax" . Google (NasdaqGS: GOOG - news) and Amazon have also been criticised.

Troy Alstead, Starbucks chief financial officer, said that the company was not happy with the company's performance and that it would be looking to make more profit in the UK.

The Chancellor is also expected to make the issue of tax avoidance a key plank of this week's Autumn Statement, launching a Treasury inquiry into new global rules to make internet companies in particular pay higher amounts of tax in the countries they operate.