After months of pressure from the British media and lawmakers, Starbucks European headquarters will move to Chiswick in London from Amsterdam, the company announced today. It added “This move will mean we pay more tax in the UK,” but did not say how much.
Manufacturing will continue in the Netherlands, the company emphasized.
In 2013, Starbucks paid £5 million ($8.4 million) in UK corporation tax, its first tax payment since 2009. It had managed to legally avoid paying UK taxes by transferring funds to its Dutch sister company in royalty payments.
In 2011, for example, Starbucks generated sales of £398 million ($668 million) in the UK but paid no corporation tax.
Starbucks was based in Amsterdam for tax reasons
Starbucks had told a Committee of UK lawmakers that it had struck a deal with the Dutch government which made it attractive from a taxation point-of-view to base its European operations in Amsterdam.
UK Prime Minister, David Cameron had told a meeting in Davos that multinationals that avoided paying taxes should “wake up and smell the coffee, because the public who buy from them have had enough.”
In 2012, Reuters reported that Starbucks had informed the UK tax authorities that its British arm was losing money while at the same time informing investors that it was profitable. Consequently, the company was called to testify before a parliamentary hearing regarding its tax affairs.
Starbucks European headquarters moving to its largest regional market
The UK is Starbucks’ largest European market. It has 800 stores in the UK, more than 50% of Europe’s total. The company says it will be easier to monitor operations from its largest European market’s capital.
In an interview with the BBC, director of tax at legal firm Pinsent Masons, Heather Self, said that if more tax is paid in the UK it probably means Starbucks pays less tax somewhere else, “They’re not going to create a bigger tax bill for the group as a whole,” she said.
Kris Engskov, Starbucks’ top executive for Europe, the Middle East and Africa, said to The Times of London:
“Over time we will pay more tax in the U.K. and pay slightly less in the Netherlands. On a global level I think it’s relatively neutral. Our global rate is 34 percent, and we don’t expect it to have a significant impact on that.”
Self added that multinationals cannot be expected to pay tax twice on the same revenue, but governments should reasonably expect taxes to be paid somewhere. She added “The question is not necessarily what’s moral and what’s not, but is the tax following the real economic activities?.”
Expansion planned in UK
After Starbucks European headquarters are relocated to London, the company says it plans to open 100 new stores in the UK.
Starbucks is not the only multinational that has been criticized for paying very little or no taxes on huge profits by using creative accounting and exploiting different corporate tax rates within the EU (European Union). European media and lawmakers have also pointed the finger at Facebook, Amazon, Google and Apple.
The outcry regarding multinationals making billions and paying the UK treasury virtually no tax became so intense that eventually Prime Minister David Cameron promised to take action. Some British lawmakers, including Margaret Hodge, called for boycotts of Starbucks, Google and Amazon for their “immoral” behavior.
Even after announcing its move to London, Ms. Hodge is still skeptical. She said “If Starbucks are going to pay more tax in the UK that’s a good thing and a victory for consumer power. On the other hand we’ll have to wait and look at the detail. Starbucks will only pay tax on profits they declare and the majority of the past decade they’ve been making a loss.”
The UK changed its tax regulations in a move to attract more multinationals to base their European head offices in the Britain. Publisher UBM PLC and advertising giant WPP PLC moved to London from Dublin last year.
Starbucks is the biggest coffee shop chain worldwide. It has more than 20,000 outlets in over 60 countries.
Video – Starbucks European headquarters relocating to London