Starbucks Close To Deal On Paying More Tax

Mark Kleinman, City Editor
Starbucks Close To Deal On Paying More Tax

Starbucks will try to end the damaging row over its UK tax affairs by striking a deal with the Government that it believes will involve paying a comparable level of corporation tax to Costa Coffee, the British-based chain.

The US-owned coffee shops group is close to agreeing with Her Majesty's Revenue & Customs (HMRC) a binding agreement over its UK corporate and tax structures.

The new terms could land Starbucks with a corporation tax bill of in the region of £10m for the current financial year.

In the 14 years since arriving in the UK, the chain has paid just £8.6m in corporation tax.

I have learned that the two sides have been in discussions about whether the agreement will be backdated as a gesture from Starbucks that would reflect its concern over the impact of the recent row on its image among British customers.

Sources close to the talks said that a retrospective application of the new structure was now unlikely.

A full statement will be made by Starbucks before the end of the week.

The company is unlikely to refer directly to Costa's tax bill, but insiders said that it had been "a reference point" in talks between Starbucks and the Government.

Tax experts questioned the premise of that discussion because Whitbread, Costa's owner, operates under a different tax structure.

In 2010-11, Costa paid around £15m in UK tax, while a year later it is expected to have paid £18m.

Costa has about 1479 shops in the UK, some of which are run by franchisees, while Starbucks owns approximately 720.

Multinationals with large operations in Britain, including Amazon and Google, have faced intense criticism in recent weeks over their minuscule UK tax bills.

The light tax burdens have been generated by a practice called transfer pricing, which involves charges being made by companies in the same group based in different jurisdictions, with the effect of depressing profits in the higher-tax jurisdiction.

In Starbucks' case, that relates to the royalty fee paid to a sister company in the Netherlands for the right to use its brand and coffee recipe.

Earlier this week, the Chancellor committed £77m of additional funding to combat tax avoidance and evasion.

The Treasury and Starbucks declined to comment.