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For Starbucks in Britain, a skinny tax bill?

By Anthony Faiola,December 06, 2012

View Photo Gallery - : A customer sits inside a Starbucks cafe in London. Britain is savaging…

LONDON — The Great British Boycott of Starbucks had nothing to do with whole milk in the skinny lattes or ice chunks in the mocha Frappuccinos. Instead, in a country where the use of creative accounting by U.S. corporations has enraged the public, the Seattle-based American icon was allegedly paying single-shot taxes on Venti-size sales.

Across Europe, austerity-driven cuts during hard economic times are shedding light on a culture of tax evasion by the rich. Nearly broke Greece is gripped by a drama over a mysterious data stick purported to hold the names of more than 2,000 well-off locals with secret Swiss bank accounts. Italian financial authorities, meanwhile, have launched a hunt for Ferrari owners who declared Kia-level incomes.

But here in Britain, the tax furor has gone corporate, with politicians, the media and the public savaging foreign companies — mostly American — that ring up big British sales while using internationally negotiated tax standards to legally minimize what they pay back in local corporate tax.

Rising British wrath has led to a two-month-old national boycott of Starbucks for allegedly diverting profits to lower its taxable income, with the call to avoid the company’s coffee shops promoted even by leading lawmakers and top government officials. Under intense pressure, Starbucks — though it denies dodging taxes — announced a major deal with the British government Thursday to overhaul its tax policy here, forgoing legal loopholes and agreeing to pay millions more in corporate taxes over the next two years.

The debate here could propel the issue of how and where corporate taxes are paid toward the top of the international agenda. Along with the Germans, the Conservative-led British government — which takes over the presidency of the Group of Eight leading world economies next year — launched a push last month for far tougher tax standards on global companies, with the first draft of an action plan set to be presented at a meeting of the world’s 20 leading economies in February.

In the United States, corporate taxes have been heatedly discussed amid the looming fiscal cliff and a more sweeping overall of U.S. tax codes planned for next year. With U.S. multinationals holding an estimated $1.7 trillion in earnings abroad to avoid the relatively high U.S. corporate tax rate of 35 percent, calls are growing to effectively mirror at least some of what Britain has set out to do: lower legal rates, while cracking down on ploys used by companies to avoid paying corporate tax.

On Wednesday, the British government announced a $123 million boost in funding for Her Majesty’s Revenue & Customs service that would, among other things, mean more personnel scouring corporate tax filings in search of fudges and fraud. Even as the government is moving to slash the corporate tax rate to encourage honest reporting, calls are growing to “name and shame” foreign companies seen as tax code manipulators.

“We want these large multinational companies to pay proper taxes here in the U.K.,” Prime Minister David Cameron said Wednesday on the floor of Parliament. He added that “some companies have been pursuing rather strange practices to pretend that their revenues” are lower in Britain than they really are.

Executives from Starbucks, Amazon.com and Google were hauled before a parliamentary committee here last month to face a grilling over allegedly “immoral” — though not illegal — ax practices after a series of exposés in the British press.

Multinationals — through a network of more than 3,000 international treaties — are granted a series of tools to avoid double taxation. But critics say the rise of increasingly complex income reporting and digital commerce has allowed companies to shift profits to lower tax jurisdictions.

Aided by a maze of deals with other company subsidiaries, Starbucks, for instance, has paid only $13.76 million in British corporate taxes on nearly $5 billion in British sales since 1998. During those years, the company has transferred as much as 6 percent of its annual revenues in Britain to a Starbucks subsidiary in the Netherlands — where it had reached a preferential tax deal — in exchange for brand rights and marketing.

Employing similar methods, Amazon and Google last year paid corporate tax on only a tiny fraction of their British sales — $2.56 million and $9.6 million respectively, according to the committee report.

Outraged coffee drinkers here launched a highly public boycott against the most visible of the three: Starbucks. Despite the deal struck Thursday, an activist consumer group — UK Uncut — has called for a takeover this weekend of at least 34 Starbucks branches across Britain, turning them into mock homeless shelters to highlight corporate tax avoidance.

“Offering to pay some tax if and when it suits you doesn’t stop you being a tax dodger,” said Hannah Pearce, a spokeswoman for the group.