COFFEE chain Starbucks yesterday offered to pay £20m in corporation tax over the next two years even though it records no UK profits, in an effort to calm MPs’ anger that it has not had to pay any for years.
But tax lawyers warned the move sets a dangerous precedent with an arbitrary charge being demanded for no clear legal reason, when changes to the law would have a clearer, more widespread and fairer impact.
The move comes as the European Commission set out new measures to reduce tax avoidance, seeking a common policy on the treatment of tax havens and coordination on “tackling aggressive tax planning.”
Starbucks said it will no longer claim tax deductions for the royalties it pays, the coffee it purchases, for interest paid on intercompany loans, or for capital allowances and losses carried forwards.
When those costs – which it is legally entitled to claim as deductions – are removed, it believes it would owe £10m per year. And if it is still not profitable in 2015 and beyond, it may make this donation again.
“These actions will position us to make a larger contribution to the exchequer and to the communities we serve while we make the moves necessary to achieve a sustainable level of profitability,” said UK managing director Kris Engskov.
But lawyers warned the deal, however nobly intended, does not represent a reasonable way to pay taxes.
“Starbucks is operating within the law, and has not done anything wrong. There is no legal or scientific logic to this move,” said Richard Jordan from law firm Thomas Eggar.
“It is a PR response, giving the people what they want to hear.”