A Starbucks refill

The hysteria increases as MPs call for an investigation of Starbucks' tax affairs. Cue Margaret Hodge of the Public Accounts Committee:

"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. It is just not right."
She added: "We simply cannot continue with a system that allows a company like Starbucks to get away with paying no tax whatsoever."

I don't know about Ms Hodge, but when I look at my personal tax return I certainly do ask a question. It's three words long and starts with "What the". Anyway, let's examine that claim of "no tax whatsoever".

What does the boss of Starbucks UK say?

"We don't see paying taxes as a bad thing. [My arse] We believe strongly in paying our share and although our lack of profits have meant we haven’t paid much corporate tax, we have contributed £160m, in the last three years alone, in terms of national insurance, VAT, and business taxes.

That's £53m/year; let's cast our eyes back to Monday's article on Starbuck profits:

The chief finance officer at the time, Peter Bocian, added that the UK division enjoyed operating profit margins of almost 15% that year [2007], equivalent to nearly £50m in profit.

Noting that I don't have to hand figures more recent than 5 years ago, that still implies that Starbucks is paying approximately its fair share in tax; the difference is that it's in VAT, NI and business rates instead of corporation tax. If £50m profit is 15% of turnover then turnover is around £330mm. Let's assume a 10% annual growth, compounded over 4 years (to 2011) adds 46%, so 2011 turnover could be approximately £480mm. A 15% profit margin on that is £72mm, and if you applied a 35% corporate tax rate you'd get £25mm for the Treasury.

The reason quoted for Starbucks making an overall loss?

"The UK is undoubtedly the most competitive expresso market anywhere in the world."

This doesn't sound hyperbolic. The number of coffee chains (Costa, Cafe Nero for instance) competing with Starbucks with similar drinks and prices will drive down their profits to just above break-even, if that. I'm sure there's a degree of transferring money to headquarters, where it will be taxed on behalf of a different government, but it's still not surprising that Starbucks can't get anywhere near its 2007 profit margin.

And that comment by Ms. Hodge about a "highly profitable global corporation"? That fourth word is significant. As Mr. Worstall notes, the whole EU was designed on the basis that companies should be able to be based and taxed in one company and operate in all the others.