Starbucks in hot water over tax accusations

The US coffee giant, which controls almost a third of the British market, is the world's biggest coffee chain and has made more than £3bn in sales in Britain, promised investors in its 2010 annual report that the company was starting 2011 "heathier than we have ever been."

But its local subsidiary reported its third consecutive year of losses - despite having sold £1.2 billion worth of stock in the same period.

However it was revealed that Starbucks's complex multinational structure allows its Netherlands-registered "European headquarters" to charge local subsidiaries hefty royalty fees for use of the Starbucks brand - reducing Starbucks UK's taxable income and shifting the cash offshore instead.

By comparison, its nearest local rival Costa - with a similar market share of 37.6 per cent - paid £15m in tax in the year ending 2011 alone.

Campaigner for tax law reform and chartered accountant Richard Murphy said the affair showed how loose tax laws did more to damage the economy than starve the public purse. It put offshore multinationals ahead of home-grown businesses as well.

"There can't be anything much more important than that when we're looking for UK business to help pull us out of the recession, but so far the government seems quite unable to see the seriousness of the situation they have created.

"And that leads to the inevitable question of why that is the case and in whose interests they are governing," he said.

A Downing Street spokeswoman declined to comment directly on Starbucks's affairs - despite Prime Minister David Cameron's comments in June describing comedian Jimmy Carr's tax avoidance as "morally wrong."

When asked to account for the disparity, the spokewoman said Mr Carr's case "was exceptional because of the exceptional media coverage, but we don't comment on individual cases."

The company said its tax affairs were "in full compliance with all UK tax laws."

It said: "There has been no suggestion by any authority that we are anything but compliant and good taxpayers."