Tax campaigners have questioned whether Starbucks will make a significant additional contribution to Treasury coffers after the coffee chain announced that it is moving its European head office from the Netherlands to the UK.
Accountant and campaigner Richard Murphy said the coffee chain's small head office operation, currently in Amsterdam, was little more than a "conduit or moneybox" used by Starbucks to collect royalty payments and move them on to other parts of the group. "There has never been an intention to make serious profits in the Netherlands and I am sure there won't be in the UK."
Starbucks' European head office was at the centre of criticisms 18 months ago that it had been depressing the group's tax bills around Europe by charging sister companies heavy royalty fees. Moving these headquarter operations to London is the latest example of a wave of multinationals arriving in Britain after a series of controversial tax reforms pushed through by George Osborne to woo international firms.
The relocation will have no impact on the tax position of the group's coffee chain business in the UK. This operating business was heavily criticised by MPs and tax campaigners in 2012 after it emerged that the business had paid just £8.3m in tax since coming to the UK in 1998, despite sales of more than £3bn.
On Wednesday Starbucks claimed that the head office move would "mean we pay more tax in the UK", but the amount is expected to be negligible based on an analysis of head office operations in Amsterdam. Accounts filed in the Netherlands show the existing head office operation has been loss-making since 2010, and paid just €342,000 (£281,500) in tax last year.
Despite amassing revenues of €92.5m for the year to September 2013, mainly in Starbucks royalty fees from regional coffee shop chains across Europe and the Middle East, Starbucks' European head office made a pretax loss of €3.9m.
This was after heavy deductions, including €27.8m of salary costs, primarily for executives; and a €52m payment to sister entities within the Starbucks group related to yet more royalty agreements.
Not all deductions at Starbucks' European HQ were allowable for corporation tax, so it did pay a small amount of tax. Any new UK tax liability arising from the shifting of the European headquarters is expected to be similarly modest.
Faced with a consumer boycott, Starbucks responded with "a commitment … to pay a significant amount of corporation tax during 2013 and 2014, regardless of whether our company is profitable".
In truth, Starbucks did not make voluntary tax overpayments, as many had understood this promise to mean. Instead, Starbucks agreed to temporarily unwind aggressive intra-group transactions – including royalty payments – which had depressed UK taxable profits. This moratorium will expire in September.
The shift to the UK is expected to involve only a handful of senior executives transferring to offices in London. Starbucks said that the move would help its executives oversee the company's largest European operation, in the UK.
The group's London-based European boss Kris Engskov, who had been about to move to the Netherlands, has cancelled these plans and will remain in the UK.
Engskov was previously a close adviser to Bill Clinton as US president and worked on his 1992 election campaign. During the campaign the Clinton camp attacked George Bush Sr, accusing him of being soft of taxing big business. They told voters, if elected, they could collect an additional $45bn in tax by clamping down on foreign multinationals that were aggressively shifting taxable profits out of the US.
The move is not expected to impact Starbucks' operational hub for Europe and the Middle East, which will continue to operate out of Amsterdam and employ more than 200 staff. This business, which supplies coffee to Starbucks coffee chains has also been the target of criticisms for the prices charged to sister companies. Critics say these prices do not reflect a market price and are designed to shift profits to more favourable tax jurisdictions — allegations Starbucks has always denied.
The G20 group of countries last year ordered an overhaul of the tax treaty guidelines that govern how multinational companies transact with themselves across national borders in the wake of a series of controversies involving Google, Amazon, Microsoft, Apple as well as Starbucks.
At the World Economic Forum in Davos last year, David Cameron appeared give his backing to public outrage at Starbucks' aggressive tax treatments in the UK. He told an audience of business leaders: "Some forms of avoidance have become so aggressive that I think it is right to say these are ethical issues and it is time to call for more responsibility and for government's to act accordingly." In a thinly veiled jibe, he urged multinationals to "wake up and smell the coffee".
Behind the rhetoric, however, other G20 nations, including Germany and the US, have been growing increasingly frustrated at unilateral tax reforms pushed through by Britain which have been attracting large numbers of multinational companies to relocate their headquarters in London. Some accuse the UK of beggar-they-neighbour tax competition.
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