Is Starbucks really not making profits in Britain?
That’s what the company claimed on Monday, when angry UK lawmakers charged that Starbucks, Google and Amazon are paying little or no tax on their earnings in Britain, even while they have racked up billions of dollars in sales.
Hard to believe when there are over 200 Starbucks coffee shops within a 12-mile radius of Trafalgar Square, in the center of London.
A Reuters report last month showed that Starbucks had paid no corporation, or income, tax in Britain in the past three years and had paid only 8.6 million pounds since 1998.
Google, Amazon and Starbucks faced aggressive questioning by British Members of Parliament last week over their decision to base their European businesses outside the UK to avoid paying full UK tax. The companies were questioned as to why they have offices registered in Ireland and Luxembourg, which incur lower tax rates, and also how they charge their own subsidiary companies for services, a practice known as transfer pricing.
Britain’s Public Accounts Committee invited the three big companies to give evidence amid mounting public and political concern that big international companies are avoiding taxes.
Not surprisingly, legislators said they could not accept that Starbucks had reported losses for all but one of the 15 years it has operated in the UK.
According to The Guardian, Member of Parliament Charlie Elphicke told the House of Commons on November 5 that Amazon had paid an effective UK tax rate of 2.5% on 2011 earnings of £309bn. Google paid 0.4% on £2.5bn. Starbucks paid nothing, though its UK earnings were £365m.
From NBC News:
“You have run the business for 15 years and are losing money and you are carrying on investing here. It just doesn’t ring true,” said Margaret Hodge, head of Parliament’s Public Accounts Committee.
Troy Alstead, Starbucks global chief financial officer, acknowledged to the panel that its taxable profits in the U.K. are calculated after royalties paid to its European headquarters in the Netherlands have been deducted. Alstead acknowledged that it has a special tax arrangement with the Dutch government covering its headquarters.
Companies operating in Europe can base themselves in any of the 27 EU nations, allowing them to take advantage of a particular country’s low tax rates.
Amazon is under scrutiny because of its registered base in Luxembourg, which allowed it to generate £3.3bn of sales in the UK last year yet pay no corporation tax. It has also been able to pay 3% VAT on UK book sales, rather than the 20% UK rate.
Amazon’s main UK unit paid less than 1 million pounds in income tax last year
Matt Brittin, Google Vice President for Sales and Operations, Northern and Central Europe, acknowledged the company did cut its tax bill by channeling profits from European sales through Bermuda but said this was perfectly legal.
Google’s filings show it had $4 billion of sales in the UK last year, but despite having a group-wide profit margin of 33 percent, its main UK unit reported a loss in 2011 and 2010. It had a tax charge of just 3.4 million pounds in 2011. The search engine provider books European sales via an Irish unit, an arrangement that allowed it to pay taxes at a rate of 3.2 percent on non-U.S. profits last year.
There’s something fishy going on here. Let’s hope that UK legislators can do something about it.
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Photo Credit: Ivana DiCarlo