Starbucks UK head office move makes "good business sense", though impact on tax bills will be small says expert

Out-Law News | 17 Apr 2014 | 3:38 pm | 1 min. read

The announcement by coffee chain Starbucks that it will move its European head office from Amsterdam to London makes "good business sense" for the international firm, but will not make a huge difference to the amount of tax that it pays, an expert has said.

The company has confirmed that it will continue to roast and distribute all of the coffee required by its European coffee shops at its Amsterdam hub, but has said that royalties from other European countries will now be paid to the UK.

"The UK tax bill will go up, as there will be taxable royalty income here", said tax expert Heather Self of Pinsent Masons, the law firm behind Out-Law.com.  "However, the income has just moved from the Netherlands to the UK, so the total tax bill of the group will probably stay the same, or even reduce slightly as the UK tax rate is less than that in the Netherlands".

"While locating a European holding company in the UK isn't tax free, there are many benefits to establishing your headquarters here. The government is making efforts so that the UK can compete with other European tax regimes. More than half of Starbucks' European branches are in the UK, so it makes a lot of sense to establish the European headquarters here. However, moving a few senior people isn't going to make much difference to their tax bill," she said.

Starbucks is one of a number of international companies whose taxation arrangements have been scrutinised by the UK press and the House of Commons' Public Accounts Committee (PAC). The PAC in particular has accused certain firms of using artificial structures and exploiting "loopholes" in UK tax legislation to transfer profits in relation to their UK activities to other jurisdictions, usually with more lenient tax regimes. A number of international initiatives, including the work of the Organisation for Economic Cooperation and Development (OECD) on developing a global standard against base erosion and profit shifting (BEPS), have since followed.

According to a statement from the firm, the move will take place by the end of 2014 and involve "a modest number of senior executives ... some of whom are currently based in Amsterdam". Moving its headquarters to London will enable Starbucks to "better oversee the UK market", where over half of its European stores are currently located with a further 100 due to open this year.

"This move speaks for itself," said Kris Engskov, president of Starbucks Europe, Middle East and Africa (EMEA). "London is the perfect place to grow our European business.

"Starbucks came under a sustained campaign over the tax they pay in the UK so this move sends a clear signal to their critics that they are committed to the UK and will pay the tax due," said corporate tax expert Heather Self. "Given the company's commitment to Britain, it is also good business sense to headquarter here."