LONDON: Starbucks has revealed that the London headquarters it set up after a public outcry over alleged tax avoidance paid $15m in UK corporation tax in the 15 months to September.
Its European headquarters, which was moved from Amsterdam to London in 2014, employed 71 people in that period and received $185m of royalty and license payments from coffee shops and franchisees across Europe, its accounts show.
These royalty payments were for the use of Starbucks’ trademark, know-how and other intellectual property that was valued at $1.6bn in the accounts. Starbucks transferred the IP to its new London headquarters from Alki, a UK partnership that was not liable for tax in the Netherlands or the UK.
Starbucks Emea — as the headquarters business is known — announced pre-tax profits of $682m on turnover of $185m. But those profits were inflated by $631m of dividend income that was taxed elsewhere in the group, and interest payments of $27m — leaving a $15m UK tax bill.
Employment at Starbucks’ Amsterdam site, which continues to roast and distribute coffee for all of Europe, was stable and totalled 260 people in the period.
Separately, Starbucks UK — the operating company that runs its British coffee shops — had revealed in December it was making higher tax payments.
Having renegotiated leases on expensive shop sites and posted its largest ever profit, Starbucks UK paid £8.1m in corporation tax in the 12 months to September 2015 — almost as much as its total contribution between 1998 and 2012.
News of the $15m UK tax payment by its European headquarters comes as Starbucks seeks to repair the reputational damage it incurred in 2012, when its executives — along with counterparts from Google and Amazon — were involved in heated exchanges with MPs at parliamentary hearings.
Following the controversy — in which it was accused of shifting profits out of Britain through the payment of royalties — the company made a voluntary corporation tax contribution of £20m.
But the company is still embroiled in a big tax controversy after being forced by Brussels to pay about €25.5m — including €2.5m of interest — to the Dutch government following allegations of a “sweetheart” deal. It intends to appeal against the decision, which was published in full by the European Commission this week.
Next month, Starbucks is set to pay the last instalment of the tax it allegedly underpaid in the seven years to 2014. However, it did not make a provision for the payment in its accounts because it expects the decision to be overturned. It believes there are errors of both fact and law in the commission’s decision.
A cup of coffee is displayed for a photograph inside a Starbucks Corp. location at Union Square in New York, U.S., on Tuesday, July 21, 2015. Starbucks Corp. is scheduled to release earnings figures on July 23. Photographer: Craig Warga/Bloomberg©Bloomberg
“Starbucks shares the concerns expressed by the Netherlands government that there are significant errors in the decision, and we plan to appeal since we followed the Dutch and OECD rules available to anyone,” the company said.
It added the €25.5m demand was not material, citing its global tax payments of $3.8bn over the seven years in question.
It said: “Starbucks complies with all OECD rules, guidelines and laws, and supports its tax reform process. Starbucks has paid an average global effective tax rate of roughly 33 per cent, well above the 18.5 per cent average rate paid by other large US companies.”
