Starbucks received a tax credit in the UK of £4.4 million, even though their US parent company made a profit of $1.2 billion (£870 million). The company claimed that the losses were from the forced temporary closure of all 935 UK stores due to the lockdown restrictions, which dropped the year’s revenue to £243 million, almost a third of the year before. However, Starbucks’ UK arm didn’t furlough its 4,300 workers or use any government support. 

Those who follow this issue know that this isn’t the first we hear about Starbucks’ tax-related situation. The coffee chain — which uses a complex corporate structure in Europe — has faced years of criticism for the amount of tax it pays in the UK. Between 2010 and 2020, the company’s UK arm reported only 4 of those years to be in profit. Under complex Inter-company reporting rules and offshore tax mechanisms, the true performance of any single region can be manipulated by accountants. 

In the year 2020, up until the end of September, Starbucks’ UK arm reported a gross profit of £32 million, but had “administrative expenses” of £70 million, resulting in an overall loss of £41 million for the year. This reported loss allowed them to claim back taxes that were paid in previous years, as a result of a “negative tax charge”. 

On top of that, Starbucks’ European business paid $183 million in dividends to the US parent company despite the losses from the dip in growth. Since moving cash between companies of the same group isn’t subject to tax, campaigners are claiming that the company lacks transparency.

This issue adds more incentive to the planned international agreement that nation-states are working on to prevent profit shifting by multinational organisations. The G7 group countries, which include the UK and US, have established the framework, in early June, for a deal to charge companies a percentage of their profits in markets where they make large sales, as well as a minimum global corporation tax. 

Even though the rules of this agreement might take months or years before they come into full force, this can potentially tackle the tax-related transparency and uncertainty issues of multinationals such as Starbucks.

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