LONDON MPs tore into the chief of the tax authority on Monday for allowing coffee chain Starbucks to pay almost no corporation tax despite selling coffee and snacks worth billions of pounds to British customers.
MPs on the Public Accounts Committee, which is tasked with ensuring value in government financial affairs, said Starbucks's low tax payments had undermined public trust in the whole tax system.
The low tax payments from Starbucks have become a political issue in Britain since they were revealed in a Reuters investigation last month.
"It just smells and it doesn't smell of coffee. It smells bad," Richard Bacon, MP with the governing Conservative party, told Lin Homer, Chief Executive of the tax authority, Her Majesty's Revenue and Customs (HMRC).
"It beggars belief that such a large entity with so much underlying activity here can pay so little in corporation tax," he added.
Reuters reported last month that Starbucks had paid no corporation, or income tax in the past three years and had paid only 8.6 million pounds in total over 13 years during which it recorded sales of 3.1 billion pounds.
The company avoided UK taxes by reporting losses to HMRC, even as it told investors its UK operation was profitable.
Homer declined to comment on Starbucks, citing taxpayer confidentiality, but said the agency ensured that businesses paid the taxes they should.
Starbucks was not available for comment. The coffee giant, which has a market capitalisation of about $39 billion (24.4 billion pounds), has previously said it sought to pay its fair share of taxes in every country where it operates.
One of the ways that Starbucks minimises its British profits and therefore its UK tax liability, as revealed in the Reuters investigation, is by having the UK unit pay large royalties to its subsidiaries in other countries for use of its brand.
Starbucks pays a larger share of British sales as royalties to subsidiaries outside Britain than rivals such as McDonald's. Margaret Hodge, head of the committee, said that showed that the tax office's procedures were lacking.
"Either the skills of your individuals aren't good enough or you're not getting underneath it," she told Homer.
The MPs also challenged Homer's assertion that existing rules designed to stop companies shifting profits out of the countries where they originate worked well.
Hodge cited other companies including Google and Apple which have racked up billions of pounds in UK sales but paid almost no tax in the country.
By channelling sales through low tax countries such as Ireland, Google managed to reduce the tax rate on $7.6 billion of non-U.S. profits to just 3.2 percent last year. Apple's tax bill on $36.8 billion of foreign income was 1.9 percent, the company's regulatory filings show.
(Reporting by Tom Bergin; Editing by Peter Graff)