UK lawmakers slam Starbucks tax deal

Thu Oct 25, 2012 1:06pm EDT
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By Tom Bergin

LONDON (Reuters) - British lawmakers have criticized a deal the tax man made with Starbucks (SBUX.O: Quote) that allowed the coffee chain to almost eliminate its UK tax bill by deducting royalties the group paid itself for the use of its own brand.

Starbucks Chief Financial Officer Troy Alstead told Reuters the UK tax authority had questioned its practice of paying 6 percent of turnover as royalties to a Dutch subsidiary and that the two parties had agreed to lower it to 4.7 percent.

Royalty payments - in this case paying a related company for the use of the Starbucks brand - are deductible against UK tax.

"This illustrates why we need much greater transparency. We have no way of knowing whether this was a fair settlement or whether it represents another 'sweetheart deal' for big business," said Margaret Hodge who chairs the parliamentary Public Affairs Committee, which is looking at tax avoidance.

The committee has previously criticized deals the tax office HMRC (Her Majesty's Revenue and Customs), made with investment bank Goldman Sachs GS.L and phone group Vodafone (VOD.L: Quote).

The latest criticism comes as U.S.-based Starbucks faces media and political pressure in Britain following a Reuters report that showed the company had paid just 8.6 million pounds of income tax since 1998 despite racking up 3 billion pounds in sales.

Starbucks, the second-largest restaurant or cafe chain globally after McDonald's (MCD.N: Quote), cut its tax bill by reporting losses to the authorities while telling investors the UK was profitable.

On Wednesday, Prime Minister David Cameron faced questions in parliament about the tax practices of a number of multinationals including Starbucks.   Continued...

A woman holds a Starbucks takeaway cup in London October 24, 2012. Starbucks's reputation among consumers in Britain has been hit by wave of criticism of its tax affairs from politicians and the media, pollster YouGov said. REUTERS/Suzanne Plunkett