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Tax Wars: Britain v. Starbucks, Amazon

  • Jan 24, 2013 | Gail Cole

 Taxes: Why the Brits May Go Back to Tea.

Great Britain has long been known as a nation of tea drinkers, but the British have been up in arms over coffee of late. Specifically, Starbucks Coffee. The Seattle, Washington, based coffee giant has been in the United Kingdom since 1998, when it opened a store on King's Road in Chelsea. Last month, Brits protested at dozens of Starbucks cafes because the multinational corporation "has paid only £8.6m in corporate income taxes…" since it crossed the Atlantic.

To placate disgruntled British coffee drinkers, the company announced last December that it would "volunteer to the British taxman around £10m ($16 m) a year more in 2013-14 than it is required to pay by law." The move backfired. Critics claim that the offer "makes a mockery of the tax system… ." British tax authorities remind that corporation tax isn't voluntary.

In its defense, Starbucks points out that it has declared losses the last four years because of premiums paid to both the Netherlands (where its coffee beans are roasted) and Switzerland (where the beans are bought). "Corporation tax is levied on profits… ." Yet if there were losses, where does this £10m come from? "We have absolutely no idea," says Prem Sikka, professor of accountancy at Essex University. John Redwood, Tory MP, thinks the £10m was offered to appease the people and maintain business. (The Guardian).

Starbucks is not the only multinational corporation causing ire in Europe over taxes. France wants more tax revenue from Amazon and Google. Britain is reportedly "losing more from VAT loopholes on the sale of digital services [from Amazon and its ilk] than it cost to put on the Olympic games."

VAT, or Value Added Tax, may be loosely defined as the European equivalent to American sales tax. The VAT on electronic services, which, under European Union laws include digital products like e-books and online apps, is "imposed at the rate applying to the country in which a company is headquartered rather than the rate applied by the country in which it is bought." Amazon's European headquarters is in Luxembourg, where the VAT rate for electronic services is 3%. In the United Kingdom, the VAT for those services is 20%. (dailymail.co.uk).

The British chancellor of the exchequer, George Osborne, "has responded to the furore over Starbucks, Google and Amazon by promising to … wage war on tax havens." (The Economist). And this week at the 2013 World Economic Forum in Davos, Switzerland, British Prime Minister David Cameron, said

"Any businesses who think that they can carry on dodging that fair share or that they can keep on selling to the UK and setting up ever more complex tax arrangements abroad to squeeze their tax bill right down -- well, they need to wake up and smell the coffee because the public who buy from them have had enough."

He promised that the G8 this year, which Britain is to chair, will focus on "trade, tax and transparency." The prime minister's government has come under fire for talking the talk but not walking the walk. Chief Executive of the TaxPayers' Alliance said that "David Cameron has been quick to highlight the problem of tax avoidance but slow to actually do anything about it."

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Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.