Starbucks commitment to the UK

Starbucks Speech at London Chamber of Commerce & Industry

Tax FAQs

Q: Why has Starbucks decided to review its tax approach in the UK?

A: There has been much debate about reforming the current tax system in this country, specifically around corporation tax. Starbucks has paid the level of taxes required by the law. However, we have listened to our customers and it has become clear that you expect more from us than just to follow the letter of the law.

The most important asset that we have built in our time in the UK is trust – trust with our employees, customers and the wider society in which we operate. We fundamentally believe that acting responsibly and listening to our customers makes good business sense.

This is why we have decided to make clear to you that we are changing our approach to corporation tax.

Q: Why does Starbucks not pay tax in the UK?

A: Starbucks pays a range of taxes in the UK, but it is true that we have not paid a meaningful amount of corporation tax. Corporation tax is based on the profits a company makes. We have found making a profit in the UK difficult and therefore have not been in a position to pay much corporation tax.

Nonetheless, even though we have always paid our taxes to the letter of the law, we know that to retain public trust we need to do more.

We've built a significant presence in the UK, with 760 retail stores across the country, and we employ thousands of people. In addition we have spent hundreds of millions of pounds with local suppliers on milk, cakes and sandwiches, and on store design and renovations. Annually, we contribute nearly £300m into the UK economy. We are committed to the UK for the long-term and will continue to invest here, through providing jobs and investing in providing the best experiences and coffee for our customers.

Q:How much tax will Starbucks pay - will it be a 'fair share'?

A: In 2013 and 2014 Starbucks will not claim the tax deductions for royalties or payments related to our intercompany charges for interest and mark-up on the coffee we buy. Such a move is unprecedented so we will have to work out the details of an approach that will enable us to make a change and to ultimately contribute more.

In addition, we have committed to paying a significant amount of corporation tax during 2013 and 2014 regardless of whether our company is profitable during these years. We are still working through some of the calculations, but we believe we could pay or prepay somewhere in the range of £10 million in each of the next two years in addition to the variety of taxes we already pay.

These actions will position us as a company to make a larger contribution in tax and most importantly to the communities we serve while we make the moves necessary to achieve a sustainable level of profitability.  We believe that this is the right thing to do. We’ve listened to our customers and we’re taking the actions necessary to pay more corporation tax in the UK, above what we are required to.

Q: Will Starbucks pay the same amount of tax as Costa?

A: The changes we are making are in relation to our own business. We have yet to work out the details with HM Treasury and HMRC. We will work with them to make the changes we committed to and to determine the resulting tax that we will pay.

This is an unprecedented move that we are making having listened to our customers and is not related to any other business.

Q: How can Starbucks be unprofitable?

A: It may seem hard to understand when we have 2 million customers visiting us each week in 760 stores across the UK, all of which are highly visible on the high street that we could be unprofitable. There are two core issues driving this. First, we are a relatively young business in the UK and as such we have been in a rapid expansion mode that began about a decade ago. Given the high cost in this market to fit out a store and to lease property, it will take longer than most markets to recover our investments. Secondly, during our rapid expansion phase we positioned a high proportion of our efforts on prime, high street locations, and in particular in Central London where the cost of leasing is the highest in the UK. The result has been a group of stores that do not make money.

The UK is a very important market for us and we are willing to make significant investments here as we believe over the long term we will be sustainably profitable and therefore are making decisions and implementing a strategy to achieve that. As evidence, in Q4 of FY2012, we exited 20 underperforming locations to make faster progress on addressing the portfolio challenges and over time will continue to do so where commercially viable.

Starbucks is committed to the UK. So we continue to invest in creating opportunities and jobs in the UK, like our commitment to offer 1000 apprenticeships over the next two years and 5000 new jobs over five years. We’re also investing for our customers – whether that is refurbishing 70 stores over the summer or adding a free shot of espresso to our Lattes. 

Q: Will the cuts to staff benefits go towards paying for the tax Starbucks owes?

A: These changes to our benefits are completely unrelated to tax. We have been consulting with our partners (employees), about proposed changes since July this year and every partner has had the opportunity to tell us what benefits they value most. We call our employees partners because they receive shares in the company- at the last grant baristas with a year’s service received shares worth over £400.

The welfare of our partners (employees) is of the utmost importance to us and partner pay and benefits is one of the biggest investments that we make in our UK business. We have rebalanced our investment across pay, benefits and training. The removal of some benefits has allowed us to invest more heavily in other areas, such as increasing wages in London, offering the opportunity to earn externally recognised qualifications, offering shares in the company and creating job opportunities. We committed to offering 1,000 apprenticeships over 2 years earlier this year, 700 of which will be in London. Last year we also announced that we expect to create 5,000 new jobs over the next five years.

Q: Will these changes mean that Starbucks makes cost cuts elsewhere in the UK?

A:The UK is a key market for us and we are very focused on continuing to invest in it in a number of ways – increasing the number of stores across the country, and creating jobs in the communities we serve – especially for young people. We announced last year that we plan to open 300 new stores and create another 5,000 new jobs in this country over the course of 5 years, and we remain on track to meet that commitment. In September, we committed to employ 1,000 apprentices over the next two years, with 700 of those offered in London stores alone. This will give young people a chance to get a foot on the ladder of a promising retail career at a time when they most need it. And we will continue to listen to and invest in our 8,500 Starbucks partners all over the UK who continue to look after our customers in such a remarkable way.

Q: Why is Starbucks negotiating with HMRC over the amount of corporate tax that it will pay?

A: We are not negotiating with HMRC and despite the fact that we have a consistent and ongoing dialogue with the tax authorities over our business affairs here in the UK; we have not yet fully discussed this particular proposal with HMRC. In 2013 and 2014 Starbucks will not claim the tax deductions for royalties or payments related to our intercompany charges for interest and mark-up on the coffee we buy. Such a move is unprecedented so we will have to work out the details of an approach that will enable us to make a change and to ultimately contribute more.

In addition, we have committed to paying a significant amount of corporation tax during 2013 and 2014 regardless of whether our company is profitable during these years. We are still working through some of the calculations, but we believe we could pay or prepay somewhere in the range of £10 million in each of the next two years in addition to the variety of taxes we already pay.

Click here to read an open letter from Kris Engskov, managing director Starbucks Coffee Company UK