The American coffee giant Starbucks has became the first large multi-national company to back down in face of public anger and agree to pay more tax in Britain.
The company said it expects to pay “somewhere in the range of £10 million” in UK corporation tax for each of the next two years.
It will no longer claim tax deductions on the royalties it pays for coffee purchases, the interest paid on intercompany loans or capital allowance deductions.
Announcing the move – which came after a sustained public boycott of the coffee chain - Starbucks UK managing director Kris Engskov said the firm had been taken a “bit by surprise” over the reaction to its tax affairs.
Mr Engskov said the company’s proposal had not been discussed with HM Revenue & Customs, adding: “With the backdrop of these difficult times, in the area of tax, our customers clearly expect us to do more.”
Starbucks cut income tax by paying fees to other parts of its global business, such as royalty payments for use of the brand.
This meant Starbucks UK was effectively making a loss and therefore did not have to pay any corporation tax. As a result, it has not broken any law.
Its nearest UK rival, Costa, recorded £377 million sales last year, compared with Starbucks' £398 million, but its tax bill came to £15 million.
Mr Engskov said Starbucks had always organised its tax affairs “according to the letter of the law” but the company’s change of heart was “the right thing for us to do.“
The decision will shift the focus of anger over tax avoidance to other multi-national firms such as Amazon who also fail to pay significant tax in this country despite their huge presence here.
Activist group UK Uncut is planning protests at Starbucks cafes on Saturday in protest at the company's tax arrangements as well as the impact of government spending cuts on women.
Hannah Pearce of UK Uncut said the protest would go ahead and that offering to pay some tax “if and when it suits” did not stop a company being a tax avoider.
“(This) announcement is just a desperate attempt to deflect public pressure,” she said.
“There's no money yet, and hollow promises on press releases don't fund women's refuges or child benefits.”
She said the Government must be kept under pressure to force Starbucks and other tax avoiding companies to pay their fair share, instead of cutting welfare and tax credits for single mothers and disabled women.