Starbucks pays corporation tax in UK for first time in five years

Starbucks says customers 'should not have to wait for us to become profitable' before corporation tax is paid

Starbucks, one of the companies exhorted by the prime minister to "wake up and smell the coffee" over tax, has handed over £5m to HM Revenue and Customs – its first payment in five years.

But the cash has only gone some way towards assuaging critics, one of whom complained that companies should not be able to "pick and choose" how much tax they wanted to pay.

The coffee shop chain said on Sunday it had made the contribution to please its customers and would be paying a second £5m instalment in the last half of the year despite claiming the business overall continued to make a financial loss in Britain.

"Six months ago, we felt that our customers should not have to wait for us to become profitable before we started paying UK corporation tax," the company explained in a written statement.

"We listened to our customers in December and so decided to forgo certain deductions which would make us liable to pay £10m in corporation tax this year and a further £10m in 2014. We have now paid £5m and will pay the remaining £5m later this year," Starbucks added.

Starbucks has paid £5m corporation tax this year with a further £5m to come. It says it will pay another £10m in 2014  The move follows a barrage of criticism, including a comment from David Cameron at the World Economic Forum in Davos in January when he attacked low tax payers using the coffee reference – though not specifically naming Starbucks, Google or Amazon .

A spokeswoman for Starbucks declined to say how many customers it had lost following the high profile row which started with demonstrations outside some of the outlets by the campaign group, UK Uncut and ended with scorching criticism from parliament's public accounts committee.

Margaret Hodge, MP and chair of the PAC, said on Sunday she welcomed the first payment by Starbucks but added: "Companies should not be able to pick and choose how much tax they pay. We need a system which ensures that everybody pays a fair share of tax on the profits they gain from the economic activity they undertake."

The initial row followed revelations that Starbucks had paid £8.6m in corporation tax in its 15 years of trading in Britain, and nothing in the last three years despite overall sales of £3bn.

Amazon, which had book and CD sales in Britain of £3.35bn in 2011, only reported a "tax expense" of £1.8m while Google's British business paid £6m to the Treasury in 2011 on UK sales of £395m.

During a period of austerity, the issue has turned into a major political storm with the prime minister making tax avoidance one of the key issues at last week's G8 summit of leading economies at Lough Erne, Northern Ireland.

Campaigners claimed that various licensing and supply agreements with Dutch and Swiss arms of the Starbucks empire were being used to allow it to switch profits from Britain to other countries.

UK shops are able to buy their coffee from Switzerland at a 20% premium and yet the foreign business is charged corporation tax there of 12% compared with Britain's level of 25%.

Kris Engskov, managing director of Starbucks UK, responded last December by promising to pay £20m within two years.

Accounts filed by Starbucks UK with Companies House this week will show the British side of the business still not formally profitable. Starbucks is expected to close up to 30 of its shops around the country this year. A similar number were shut last year amid tough competition from Costa and other brands.

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Article Source : http://www.guardian.co.uk

Google chairman Eric Schmidt softens line on tax loopholes

Boss of search engine says international tax law could benefit from reform – a marked shift in tone from December remarks

Google's chairman, Eric Schmidt, has said he welcomes promises by international leaders to crack down on tax loopholes exploited by the search firm and other multinational internet businesses that take billions of pounds of sales from the UK through overseas companies, which HM Revenue & Customs cannot tax.

"Given the intensity of the debate, not just in the UK but also in America and elsewhere, international tax law could almost certainly benefit from reform," he conceded in the Observer. He said an action plan from the Organisation for Economic Cooperation and Development, due to be presented to the G20 in July, was now "hotly awaited".

OECD officials have already signalled that the plan will include "updated solutions to the issues related to jurisdiction to tax, in particular in the areas of digital goods and services".

An OECD positioning paper published in February said: "Developments brought about by the digital economy are putting increasing pressure on … well-established [tax] principles. In an era where non-resident taxpayers can derive substantial profits from transactions with customers located in another country, questions are being raised as to whether the current rules ensure a fair allocation of taxing rights on business profits, especially where the profits from such transactions go untaxed anywhere."

Google's chairman, Eric Schmidt, said a tax action plan from the OECD was hotly awaited.

Schmidt's latest remarks on tax represent a marked softening in tone. In December he dismissed critics, saying: "We pay lots of taxes; we pay them in the legally prescribed ways. I am very proud of the structure that we set up. We did it based on the incentives that the governments offered us to operate."

But the Google boss now appears to accept that many of those "tax incentives" are in truth loopholes that have opened up as technological innovation has allowed companies to operate in ways unimaginable by those who drafted international tax rules.

Schmidt said he also supported moves by David Cameron to use Britain's presidency of the G8 to tackle tax. "The UK government has the perfect opportunity to take the lead in shaping this complex debate at the G8 summit next month. We hope [it] seizes the initiative and makes meaningful tax reform one of the top items on the agenda."

On Monday Schmidt will meet the prime minister, along with other multinational business leaders who sit on his business advisory group. One pressing issue for all is likely to be growing calls for big business tax reform. Bosses of BAE Systems, Tata Group, GSK, Vodafone and John Lewis will all be keen to give Cameron their perspective before the G8 meeting in Northern Ireland next month.

The prime minister has already signalled he wants to use Britain's presidency of the G8 to tackle "aggressive tax avoidance" by multinationals. "Some forms of avoidance have become so aggressive that I think it is right to say these are ethical issues," he told the World Economic Forum in January, urging multinationals to "wake up and smell the coffee".

The meeting comes after a dreadful week for Google during which its northern Europe boss, Matt Brittin, was recalled to appear before angry MPs on the public accounts committee to clarify testimony on the group's tax arrangements he gave to parliament six months ago.

Google did £3.2bn of business with UK advertisers and media buyers last year but told HMRC these transactions were technically "closed" in Ireland, and therefore not liable for UK tax. Brittin told MPs he stood by earlier evidence that his 1,300 employees in the UK – more than half of whom work in marketing – did not close sales.

The MPs were armed with evidence from several whistleblowers, former Google UK workers who told the politicians they believed they were negotiating and closing sales in the UK.

One of those whistleblowers, who worked for Google between 2002 and 2006, has spoken out publicly for the first time. "When I was at Google, our job was to find advertisers, to close the deals [and] to get them to sign bits of paper saying they were committing to spending in the UK," Barney Jones told the Sunday Times. "If that is not closing the deal, I don't know what is."

 He told the newspaper he planned to hand more than 100,000 emails and other internal Google documents to HMRC tax inspectors. Lawyers from the search firm are not expected to try to block him from doing so.

"Google has pulled the wool over the eyes of HMRC and the British population," said Jones. "[It] has prided itself on being a socially responsible company and to pay your tax is the most fundamental responsibility. This is a betrayal of everything that Google stands for."

The search firm is known for its motto, "Don't be evil", which was enshrined in the group's $23bn stock market flotation prospectus in 2004. It said: "Don't be evil. We believe strongly that in the long term, we will be better served – as shareholders and in all other ways – by a company that does good things for the world even if we forgo some short term gains. This is an important aspect of our culture."

But the words of the motto were turned against the group last week when – unimpressed by Brittin's evidence – Margaret Hodge, chair of the public accounts committee, rounded on him. "You are a company that says you 'do no evil'. And I think that you do do evil." She said the group's approach to tax in the UK was "devious, calculated and, in my view, unethical".

Google held on to its "Don't be evil" motto since it was first sent down in a list of ten guiding principles drawn up by founders Larry Page and Sergey Brin in the earlier years. Along with "you can make money without doing evil" and "democracy on the web works" on the list is "you can be serious without a suit".

Earlier this month Schmidt admitted he had initially considered the "Don't be evil" motto "the stupidest rule ever". However, in an interview with National Public Radio in the US, he added that he later discovered it did in fact provided a helpful check on sharp practices.

"So what happens is, I'm sitting in this meeting, and we're having this debate about an advertising product. And one of the engineers pounds his fists on the table and says, that's evil. And then the whole conversation stops, everyone goes into conniptions, and eventually we stopped the project. So it did work."

Not everyone agrees. In 2010, Welsh rock band Manic Street Preachers included a final track on their Postcards from a Young Man album, Don't be evil, a bitter take on online corporate culture.

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Article source : http://www.guardian.co.uk