Will Starbucks Be to Blame for New Tax Laws?

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A senior member of the British parliament has called for an investigation into how Starbucks (NASDAQ:SBUX) could avoid paying tax on 1.2 billion pounds of sales since 2009.

The MP’s concerns stem from a Reuters report that Starbucks had been telling investors its U.K. unit was highly profitable, while telling U.K. authorities that the unit was losing money, and thereby not liable to pay taxes.

Margaret Hodge, Chair of the Public Accounts Committee PAC and an MP for the Labour party, said Her Majesty’s Revenue and Customs (HMRC) — the British equivalent of the IRS — should look into Starbucks’s affairs to discover whether there’s truth behind the Reuters report.

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Hodge has the authority to instigate such an inquiry, as the PAC is tasked with ensuring value in government financial affairs. Hodge said the head of HMRC will testify to the PAC next month, and that she expects questions to be raised about Starbucks.

Steve Baker, a member of parliament for the ruling Conservative party, has also called for an inquiry. “I am a highly free market person but what I want is simple transparent tax law that is actually obeyed…there are some serious questions to answer here,” he said.

There’s no evidence yet that Starbucks has actually engaged in any wrongdoing, but the Reuters report has certainly raised questions.

Due to taxpayer confidentiality laws, HMRC would not be able to confirm a probe if one were launched. However, Baker and Hodge both said the government could get around the law to assure the public the matter was not being ignored by confirming in parliament that an HMRC probe was taking place.

The probe, whether or not it turns up anything on Starbucks, could lead to further investigations into other corporations doing business in the U.K. Labour MP Michael Meacher said he plans to table a motion in parliament asking that the government launch its own investigation into Starbucks, and potentially, into other big companies that are paying minimal taxes on big U.K. revenues.

It’s important that the Reuters report makes no claims as to the legality of Starbucks’s business practices. Campaigner Richard Murphy from Tax Research U.K., who was consulted by Reuters as part of their investigation, told BBC Radio 5: “Starbucks are playing the game here. This is tax avoidance, they’re doing nothing illegal. That doesn’t mean to say it’s right, in my opinion.”

So even if Starbucks is obeying the letter of the law, as it claims, investigations could lead to recommendations on how to change U.K. tax law so as to prevent companies doing business there from shifting those profits overseas.

“When we have a tax system that lets very large companies like Starbucks be on our High Street and pay no tax and are competing with small locally owned businesses who are paying tax on all their profits, then there’s something very clearly wrong with our tax system,” said Murphy.

Treasury Minister Sajid Javid the government is “looking at all avenues of tax evasion and closing down all avenues for tax avoidance, whether it is companies or individuals.”

The Reuters report has certainly created a stir, especially given that the government has been forced to cut funding for its arious programs in order to pay off the deficit.

The Northern Ireland Committee of the Irish Congress of Trade Unions, as well as some MPs, have already called for a boycott of the cafe chain.

“Support local cafes and bars, and send Starbucks and other tax dodgers a clear massage – Unless you contribute to society, this society has no cash for your coffee,” said ICTU Assistant General Secretary, Peter Bunting.

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