Government Urged To Reform Taxes

A recent investigation has shown that the coffee chain, Starbucks, has paid no corporation tax in the UK since 2009 by officially recording losses of tens of millions of pounds year after year, despite promoting its British operation as profitable to investors and analysts.

In fact, the coffee company has paid only £8.6m in corporation tax to HMRC in the 14 years since it arrived in the UK, despite generating sales of almost £3bn, while its nearest rival, British-owned Costa Coffee had sales of £377m in the tax year to the end of March 2011 and paid £15m in tax.

Over the last year, both corporations and individuals have come under increased scrutiny following a jump in the amount of tax avoidance schemes that have lost the government billions in tax revenues.

Recently Amazon, Google and Facebook have come in for criticism, with Facebook’s London office paying just £238,317 in tax, which represented less than 1 percent of its revenues for the year.

Of course, all of this is perfectly legal, which is why there are calls to change the law. All Starbucks is doing is exploiting differing tax regimes around the world.

The coffee company’s UK unit, for instance, is required to pay a royalty rate of 6 percent of sales to Starbucks USA for using its intellectual property.

However, there are concerns in the US that some American firms are using tax havens such as Switzerland, where tax on royalties can be 2 per cent, to collect charges for intellectual property.

But the knock-on effect of this to small businesses is more serous, as many are being forced out by unfair competition from multinational corporations like Starbucks who use every scheme to avoid paying the Treasury a bean more than they can avoid. This is why the calls for the laws to be changed are getting louder.

Rob Chedzoy specialises within providing tax planning advice, support and guidance to owner-managed businesses.

Posted in Blog.