Starbucks is right not to pay UK tax because it makes no profit, says coffee chain's tax advisor

Starbucks is justified in not paying tax in the UK because it has not made any profits in the country, according a senior figure from the firm that advises the coffee chain on its tax affairs.

Bill Dodwell, head of tax policy at Deloitte, said that the high street coffee shop was right not to pay any tax and that he was "slightly mystified" that the company had make a voluntary payment of £20 million to the tax man after its tax affairs hit the headlines last year.

Asked if he believed that Starbucks was making no profit in the UK, Mr Dodwell told BBC Radio 4's Today programme: "Yes. Vince Cable thinks that and he spent time looking at it."

He added: "Vince Cable, the Business Secretary, looked at it with his officials and he told us he thought the company did not make a profit in the UK. I'm prepared to take his view on that."

Mr Dodwell said: "There is a complete disconnect between people who think that maybe a company should be making gigantic profits and then they walk past a shut-down HMV or Blockbuster because the retail environment in the UK is difficult."

Starbucks' ability to pay no corporation tax in the UK was not due to transfer pricing arrangements which allow companies to shift profits into low-tax jurisdictions, he said.

"It is not because they have a transfer pricing mechanism," he said. "They are losing money in the UK because their rents are much higher than some of their competitors and their staff costs are high."

Mr Dodwell was speaking on a day when Parliament's spending watchdog warns that the Treasury is “unhealthily cosy” with the elite accounting firms that advise companies and Britain’s richest people how to avoid tax.

In October last year an investigation by Reuters news agency revealed that Starbucks had only paid £8m in corporation tax since arriving in Britain in 1998, despite generating sales of £3 billion. The investigation also revealed that the chain had paid no corporation tax at all since 2009.

Accounts showed that it minimised its tax burden by officially recording losses of tens of millions of pounds year after year.

In December last year, Starbucks pledged to pay around £10m each year for the following two years in corporation tax.