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Tony Wickenden: The Starbucks tax gesture

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Tony Wickenden Tax Planning Technical Area

As I usually do on a Saturday morning when the Arsenal are at home, I dropped in to Starbucks for a coffee and a read of the papers - with special focus on the predicted scores for the day’s games.

A 2-1 victory for the Arsenal against the Baggies was predicted. I was not convinced. I had endured our media-loved football lesson from “Swansalona” the week before. As it turned out, though, it was a heart-warming “full of commitment” performance from the boys and a 2-0 victory, even if contributed to by the vilified Tom Daly of the Arsenal midfield for the first penalty.

But I digress. While waiting for a new batch of Xmas-blend coffee to drip through and for my fruit toast to, well, toast, my eyes were drawn to a batch of “open letters” by the till. Given my last article on the continuing profile being given to “all things tax” I was more interested than most to read it.

As you cannot have missed, Starbucks (and a number of other big multinationals) have been in the news lately. The interesting thing, and widely commented on, is how tax has so caught the public’s imagination and generated a great deal of ire.

And its impact has been immediate, culminating, in the case of Starbucks at least, with the publication of the “OK, we accept what you say” letter telling of their plan to pay up (when, legally they didn’t have to) and look big.

Here’s the text of the letter, headed Starbucks Coffee Company UK:

“Today, we’re taking action to pay corporation tax in the United Kingdom - above what is currently required by tax law. Since Starbucks was founded in 1971, we’ve learned it is vital to listen closely to our customers - and that acting responsibly makes good business sense.

Over the more than 14 years we’ve been in business here in the UK, the most important asset we have built is trust. Trust with our partners (employees), our customers and the wider society in which we operate.

The fact remains Starbucks has found making a profit in the UK to be difficult. This is a hugely competitive market and we have not performed to our expectations over the many years we’ve been in business here. It has always been our plan to become sustainably profitable in the UK. We annually inject nearly £300m into the UK economy and are exploring additional initiatives to expand growth and speed our way to profitability in future.

And while Starbucks has complied with all UK tax laws, today we are announcing changes that will result in the company paying higher corporation tax in the UK. Specifically, Starbucks will not claim tax deductions for royalties and standard inter company charges. And we will commit to paying a significant amount of tax during 2013 and 2014 regardless of whether the company is profitable during these years. Starbucks will continue to open our books to HM Treasury and HM Revenue and Customs on an ongoing basis to ensure our financial performance and tax structure is transparent and appropriate.

The commitments Starbucks is making today are intended to begin a process of enhancing trust with customers and the communities that we have been honoured to serve for the past 14 years. And we will do even more. Our contribution will increase as we train over 1,000 apprentices over the next two years and pursue a series of initiatives that will increase employment and investment.

We know we are not perfect. But we have listened over the past few months and are committed to the UK for the long term. We hope that over time, through our actions and our contribution, you will give us an opportunity to build in your trust and custom.

Yours sincerely, Kris Engskov,managing director, Starbucks UK”

To further enhance its explanation, and maybe even the “goodwill factor”, Starbucks could have quoted the following from Lord Tomlin in the famous 1936 Duke of Westminster case:

“Every man (and coffee shop) is entitled if he can to order his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure this result, then, however unappreciative the Commissioners of Inland Revenue or his fellow tax-payers (and coffee drinkers) may be of his ingenuity, he cannot be compelled to pay an increased tax.”

OK, so the “coffee” inserts were mine, but you could just see that quote embossed on napkins…in a festive red, maybe, couldn’t you?

Having made their trust-enhancing gesture, I wonder how well it will be appreciated? One wonders whether the strength of the public approbation of Starbucks will be equivalent to the force of its outrage. Or will it be the equivalent of the annoyingly rude silence from an “offended” person when you honestly apologise? I suspect the latter. For my part I am off for a large filter and a mince pie from my local Bucks - and when asked for my name to put on the cup I will say “fellow taxpayer - thank you”.

_____

Tony Wickenden is joint managing director of Technical Connection

Through Techlink Professional, you can access CII and IFP-accredited CPD, a full and up-to-date technical library, technical updates, business generation ideas and, through our additional ASKservice, case-related technical support. Techlink Communicator delivers content for regular client and professional adviser communication. Go to www.techlink.co.uk and click the Free Trial link. Go to www.technicalconnection.co.uk for more details on our services or call 020 7405 1600.

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Readers' comments (2)

  • Interesting Tony,can only agree with the central thrust of your point, following the principles set out in the 1936 DoW case. However, you have missed out the point (as I understand it) that Starbucks' gesture is, in fact, an advance payment of tax - to be offset against liabilities that may fall due in future. So although the timing of payment is advantageous to HMRC, the total tax paid is very likely to be no more than the minimum due under the principles of the 1936 case.... Which is as it should be. If the effect of tax law is found to be contra to the original intent, it is the law which should be changed, rather than relying on the "goodwill" of taxpayers (corporate or individuals) making voluntary contributions or timing their tax payments to suit public opinion.

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  • "Starbucks will not claim tax deductions for royalties and standard inter company charges" - Any idea what levels this is at? Is it an insignificant gesture or are they actually paying taxes when they legally do not have to?

    Would you pay more tax than required by law? I know I wouldn't...

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