Coffee retailer Starbucks says it will pay additional taxes in the UK in response to public pressure there to collect more taxes from multinational companies.
In a speech to the London Chamber of Commerce, Kris Engskov, managing director of Starbucks' UK unit, announced the move, saying that it would make the additional payments in 2013 and 2014, despite the fact that it is not yet profitable. He said the unit would no longer claim tax deductions for royalties and other inter-company payments, including interest on inter-company loans, even though it is allowed to do so under UK tax law.
Engkov said the change in policy will increase its tax payments by about £10 million, or $16 million. That's more than the income of the entire European unit, which includes the UK, the Middle East and Africa.
Starbucks does not break out the financial results of its UK operations. But overall, that division saw profits fall 75% in the just-completed fiscal year to $10 million. It closed seven stores in the UK during the year, leaving it with a total of 593.
There has been an outcry in Great Britain recently over charges that multinationals are not paying enough UK taxes. Starbucks is one of the companies specifically cited, along with Google and Amazon.
"Global companies with huge operations in the U.K. generating significant amounts of income are getting away with paying little or no corporation tax here," said UK lawmaker Margaret Hodge, who chairs a Parliament committee on public accounts, in a statement earlier this week. "This is outrageous and an insult to British businesses and individuals who pay their fare share."
Engkov defended the payments that Starbucks has made in the past, saying that Starbucks has "always organized our tax affairs according to the letter of the law - always." He said that the company is still losing money in the UK after 14 years of operations there. But he said whether or not it starts to turn a profit, it will start paying taxes.
"With the backdrop of these difficult times, in the area of tax, our customers clearly expect us to do more," he said. "It's why I am standing before you today - not justifying the status quo, but to tell you that we are going to take action and do something about it.