LONDON Starbucks Corp will move its European headquarters to London from the Netherlands this year and pay more tax in the UK as a result, the company said on Wednesday.
The shift by the world's largest coffee chain comes after its low tax contributions in Britain provoked widespread criticism, including Prime Minister David Cameron telling a meeting in Davos that companies that avoided paying tax needed to "wake up and smell the coffee".
Starbucks was called to testify before a parliamentary hearing about its tax affairs after Reuters reported in 2012 that the company had told the UK tax authority its British arm was a loss-making business while informing investors that the subsidiary was profitable.
The company revealed at the hearing that it had agreed a deal with Dutch tax authorities allowing it to pay "a very low tax rate" there. This agreement meant the group was able to reduce its tax liability by having its European subsidiaries pay large royalties to the Dutch unit for using the Starbucks brand.
That system - slammed by UK lawmakers in a report in 2012 -will now be abandoned and the European businesses will pay fees to a British subsidiary, the group's Europe, Middle East and Africa boss said.
"This means we will pay more tax in the UK," Kris Engskov said in a telephone interview.
Engskov said the criticism the company faced had not, as some business leaders claimed, made Britain a less attractive place to invest.
"The UK is a great place to do business," he said.
Heather Self, partner at law firm Pinsent Masons, said the move to London followed a change in UK tax rules aimed at encouraging international companies to locate their headquarters in Britain, whereby UK-registered companies are no longer taxed on income earned outside the country.
A Starbucks spokeswoman said the rule change had no impact on the company's decision.
Starbucks also said it would open 100 new stores in the UK, creating 1,000 new jobs, after the relocation this year.
Senior executives will transfer to Starbucks' head office in Chiswick, west London, though manufacturing jobs will remain in the Netherlands.
Engskov insisted that Starbucks retained the support of customers in spite of politicians' calls for boycotts and a preference among many coffee afficionados for trendy, independent stores.
"We are as relevant as ever," he said.
(Additional reporting by Sampad Patnaik in Bangalore and Jack Stubbs in London; Editing by Tom Pfeiffer and David Goodman)