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Starbucks Leads US Brands on the Hot Seat Over UK Taxes

Posted by Barry Silverstein on October 17, 2012 12:32 PM

Even as the topics of taxes and global competition took the stage at Wednesday night's U.S. presidential debate, one little known fact about American companies doing business overseas did not surface.

US corporate giants Amazon, Facebook, Google, and Starbucks apparently paid a measly 30 million pounds in UK tax over the past four years on combined sales of more than 3.1 billion pounds in sales, according to an analysis by Britain's the Guardian newspaper data hounds, using tax information collected by Duedil. That's a whopping disparity.

Starbucks, in particular, is coming under fire for boasting about its "profitable" UK operation over the past decade to investors and analysts, even though, as Reuters puts it, "Over the past three years, Starbucks has reported no profit, and paid no income tax, on sales of 1.2 billion pounds in the UK."

Now British parliamentary committees are planning to question the company about its business practices as the tax legislation governing global firms in the UK comes under scrutiny. So Starbucks argues that it has paid taxes "to the letter of the law" in Britain, even as it's "the letter of the law" that may be the very problem.

"The [UK] government says it has created a competitive tax system. The problem is that UK companies are paying the tax and the result is that it is an uneven playing field," commented Richard Murphy of Tax Research UK to the Guardian. "UK businesses are disadvantaged against foreign businesses in the same market place. They are letting foreign companies do business here and not pay any tax."

Added US attorney David Spencer, who advises a group called Tax Justice Network, "There is more and more evidence of the fact that multinationals are shifting substantial income from high tax to low tax jurisdictions."

In the Guardian's interactive analysis of tax payments made by Amazon, Facebook, Google, Starbucks, Walmart and other big US companies operating in the UK, the newspaper was careful to state, "There is no suggestion that any of the companies that have been identified as paying low taxes in the UK have broken any laws, and all say they comply with local tax rules."But the report effectively highlights a practice known as tax avoidance (not tax evasion), which takes advantage of loopholes to pay the least amount of tax possible, even on substantial profits. 

Tax avoidance, in fact, is the motivation for another questionable trend: US companies that are "reincorporating" abroad. Since 2009, at least 10 U.S. public companies have either changed their incorporation addresses to non-U.S. addresses or have announced that they will do so, according to the Wall Street Journal. Six of these companies have taken such action just in the last year, vs. only a few from 2004 through 2008.

A top corporate tax rate of 35 percent in the U.S., higher than any other developed company, is a powerful incentive for looking to overseas markets, and "U.S. multinationals often pay far less than 35% because of various breaks, including the option of deferring the payment of U.S. taxes on foreign earnings until they are brought to the U.S.," according to WSJ.

Taxes are a top of mind issue for Americans and many stories have surfaced about tax inequities. In August 2011, for example, the Institute for Policy Studies found that the compensation of 25 percent of the 100 highest-paid US CEOs in 2010 actually surpassed the federal income tax paid by their companies, and the "bloat" continued in its latest annual survey.

Such reports fuel the likelihood that U.S. tax reform is coming, no matter who is elected president on November 6. That could be a compelling reason U.S. companies may be scrambling now to squeeze as much as they can from overseas markets, before government regulations here and abroad are tightened.

Related reading: "State of the DisUnion," Interbrand's IQ series U.S. politics and branding in this election cycle

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