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Starbucks Should Face U.K. Tax Investigation, Lawmaker Says

Starbucks Corp. should be investigated by the U.K. tax authorities, said Margaret Hodge, chairwoman of Parliament’s Public Accounts Committee.

The company paid no income taxes on revenue of 1.2 billion pounds ($1.94 billion) over the past three years by using intra-company transfers and loans to record a loss for its British business, Reuters reported Oct. 15, citing company filings. There is no suggestion the Seattle-based company has broken the law.

Her Majesty’s Revenue & Customs “must take a serious look into these allegations against Starbucks,” Hodge, an opposition Labour Party lawmaker, said today in an e-mailed statement. “Ordinary people and small businesses, who pay their taxes in full and without question, will rightly be furious that yet again a highly profitable global corporation has wriggled out of paying its fair share.”

Starbucks fell 1.2 percent to $48.39 at the close in New York. The shares have gained 5.2 percent this year.

“Starbucks does pay tax in the U.K.,” Kris Engskov, managing director of Starbucks U.K., said in an e-mailed statement today. In the past three years, the company has paid more than 160 million pounds in employee, national insurance and business rates tax, he said.

‘Regrettably’ Unprofitable

“The truth of the matter is, the one tax that has been debated in the media, corporation tax, is based on the profits we make in this country -- and regrettably we are not yet as profitable as we’d like to be,” he said. Starbucks hasn’t paid corporation tax in the U.K. during the past three years.

The world’s largest coffee-shop operator has said it may close some unprofitable locations in Europe as it seeks to turn around the company’s performance there. It also has recently changed its drink recipes and started airing television ads in the U.K. to draw customers.

“Europe continues to be our most challenged part of the world by far,” Chief Financial Officer Troy Alstead said in July after Starbucks reported third-quarter earnings results. The European economy is “extremely challenging and perhaps worsened during the quarter,” he said.

Starbucks’s effective tax rate was 31.1 percent in its fiscal 2011, compared with 34 percent the year before, according to a regulatory filing. The reduction was partially due to an increase in income in international countries having lower tax rates, Starbucks said in the filing.

The company’s tax rate for fiscal years 2012 and 2013 may be about 33 percent, Starbucks has said. The average tax rate for U.S.-based restaurants with a market capitalization greater than $100 million is 32.2 percent, according to data compiled by Bloomberg.

Starbucks has more than 17,600 stores worldwide, including about 750 in the U.K., its largest European market.

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