Starbucks is evidence that tax campaigning works


by Richard Murphy    
9:56 am - October 19th 2012

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The Guardian reports this morning:

On Thursday, YouGov’s BrandIndex, which records the strength of companies’ brand identity, revealed Starbucks has plummeted in the past few days. Its “buzz” score, which measures the number of negative and positive comments customers have heard, reached a four-year low, falling to -13.9 from +0.7. Its reputation score has also fallen from 4.6 a week ago to -3.9 on Thursday and could continue to drop.

Sarah Murphy of BrandIndex said: “To say this story has been a disaster for the Starbucks brand would be a bit of an understatement. It’s still too early to say what the long-term impact of this is going to be, but in the current climate we’ve seen the public take a fairly dim view towards accusations of corporate greed.”

I think the case that tax avoiding can harm shareholder value has been made.

It’s time corporate bosses noted. The anti-tax avoiders campaign is not going away.

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About the author
Richard is an occasional contributor. He is a chartered accountant and founder of the Tax Justice Network. He blogs at Tax Research UK
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Reader comments


It’s been a few days. People are hearing about it now, so it’s fresh in their minds.

4 weeks from now? I doubt the core Starbucks customers will care or even remember. I’m disgusted by their laissez-faire attitude to paying tax, but where I work avoiding Starbucks will basically mean boycotting my morning coffee. I don’t care that much.

Stuff like this is a great way to name and shame and perhaps cause them a little embarrassment. But I very much doubt the business they lose over this will come anywhere near the amount they would have lost from paying their fair share of tax. In which case, I suspect the majority shareholders – when realising this – won’t care that much.

2. Man on Clapham Omnibus

A big sticker on their window might help to remind customers.

I like Starbucks and I couldn’t care less about their tax arrangements.

Their biggest ”crime” IMO, is when they ask for your name when they take your order – and then call it out when they have your coffee ready.

Btw, I have my own beef with Comet the eletrical goods retailers.
They work their home-delivery drivers too hard.

I think for evidence of the tax campaign working, we’d need to see Starbucks actually stop the practice of transferring royalty payments to the US.

“. Its “buzz” score, which measures the number of negative and positive comments customers have heard”

Ok. This is the part of yougov’s ‘surveys’ which are about as reliable as astrology.

They tend to ask you a series of questions about brands, such as ‘have you heard anything positive about?’ and ‘have you heard anything negative abour?’ and display about 20 different brands, asking you to click as many as you like that you think answers the question.

Often they will ask the question in about 20 different formats (such as whether you would be proud or embarassed to work for them, would recommend them to a friend etc), with different brands available for each one.

Frankly the questionnaires are boring, and I tend to be asked them about once a week. Each time I don’t even bother reading the questions or looking at the brands, I just click through in the vain hope of finding something interesting to answer, before having a rant at them for asking stupid questions at the end in the open ended feedback box. I’ve probably told them I both like and dislike the same brand…that is how bad the research is. In fact I would go as far as to say that yougov are committing fraud if they charge their clients for any of the information they have – such is its utter uselessness. As somebody who has worked in market research, it is an insult to the profession that somebody would pay for this type of work.

So with that in mind, is the reduction in score that Starbucks have had likely to present any threat to them? It’s probably random noise caused by their position in the list of brands….

Their actual sales figures on the other hand would be the better indicator of what cost bad publicity has had on them.

Hi Damon!

So, basically, you’ve joined this debate to tell us you don’t care about this debate? Given the number of message boards carrying topics which probably don’t interest you, you must be busy.

I’m not sure that anyone has ever denied that if you lie to people then you’ll change their opinions and or behaviour.

“I think the case that tax avoiding can harm shareholder value has been made.”

No, this hasn’t been proved. Reuters relying upon the opinions of Richard Murphy about international taxation, yes, this can damage shareholder value. That’s not the same as saying tax avoidance does. For there is no proof nor even evidence of tax avoidance.

Recall Richard Murphy’s definition of avoidance. Doing what Parliament didn’t want or expect a company to do with the provisions in tax law. Yet this ability to treat the EU (in fact, EEA) as one business jurisdiction, the ability to move fees for coffee roasting, for brand royalties, is specifically written into the law. Indeed, from the EU’s point of view (the controlling jurisdiction here) it’s the point of those laws. To get the European Single Market treated as a single market.

This is the point and the purpose of the way the system has been set up. Therefore it cannot, by Murphy’s own definition, be tax avoidance.

Oh, and the only way you can change this is by leaving the EU.

8. Frances_coppola

Spokesperson for Brandindex talks up the importance of Brandindex. Who’d have thought it?

Mind you, Sarah Murphy (any relation, by the way?) has the honesty to admit that the long-term impact of the negative “buzz” is unknown. Unlike Richard Murphy, who takes this as proving that tax avoiding harms shareholder value. Sorry, Richard, it proves nothing of the kind.

All we know is that Starbucks has had some negative publicity. Whether that will harm its shareholder value remains to be seen. The share price has fallen, but then it was on a downward trend anyway. It really is too early to tell – as Sarah says.

9. Chaise Guevara

@ 6 LOL.

10. Raymond Terrific

“Their biggest ”crime” IMO, is when they ask for your name when they take your order – and then call it out when they have your coffee ready.”

Damon, this is easily solved with a few comedy names a la Chris Morris.

Arheddis Varkenjaab
Awelbe Fayed

etc

right, back to the hard talk….

John Lyons @6 ”… you must be busy.”

‘Busy’ is a good word for describing the morally superior activists who are always getting sanctimonious about things like this.
It’s a technical issue to do with tax law that I think Tim Worstall has just explained. So why all the fuss then? It does come across as a bit overly ideological to be trying to make it such a big deal.
To spin and popularise it with people who don’t fully understand the detail of these things.
You could just say that ”big corporations suck”.

So in my own way, I do ”care” about this debate, I just have my own views on it. I hope they are not seen as irrelevant just because they’re a bit anti.

“Damon, this is easily solved with a few comedy names a la Chris Morris.”

I just say that my parents named me after a boat they saw whilst walking in the harbour once….. Swansea-Cork Ferry

@1. Jack

The purpose of these articles is usually not to name and shame, but to advance the ideology of a particular group so they can keep getting their cheques in the mail. The author of this article included.

What Murphy is actually arguing against here is a company being tax compliant, yet he refuses to turn the fire on the govt for enacting the laws in that way in the first place. Why? because he believes in a giant goliath of a state that simply creates money to pay for itself to exist.

14. Churm Rincewind

In support of Tim Worstall @7: I really don’t understand why the LC blog keeps bringing forward this and similar accusations of corporate “tax avoidance”.

The whole point of the European Single Market is that it’s supposed to be a single market. The clue is in the name.

15. Shinsei1967

When you have hugely popular and admired sportsmen like Lewis Hamilton and Jenson Button living in Monaco or Switzerland for tax purposes then I really don’t think the Great British Public is as bothered about tax avoidance as the likes of Mr Murphy and UKUncut.

I am almost certain that Starbucks tax affairs will be in full compliance with the law as it applies to them. However, just saying that is not enough and consumer-facing firms know in the internet era that perceptions matter. Firms care about their brand because it is very valuable and it is why they will do everything to protect their brand. It is not Starbucks coffee that sells but the Starbucks brand.

Prior to the internet era a few lefties would have a boycott of a firm who was annoying them that particularly day. Pretty much no one cared because it only ever amounted to a few earnest Dave Spart’s. However, in the internet era things can quickly go viral and the perceptions of a brand can be trashed in a short period of time. Therefore, senior management at Starbucks will currently be doing more shouting at their PR people than their tax compliance staff.

So being in compliance with the tax law is not the only issue. Starbucks appear to have been engaged in pretty aggressive transfer pricing by overpaying for royalties and debt finance. It is easy to leave Starbucks in the UK looking unprofitable if you overpay for everything from elsewhere in the group. Although they may be doing nothing wrong and in full compliance with tax laws. Perceptions do matter and they know it.

“I think the case that tax avoiding can harm shareholder value has been made”.

Not really. “Complaining about something by lying can be destructive” might be nearer the mark.

But we already knew that.

I take the point that perception matters, but compliance really should be the only issue. How can it be otherwise?

@ Richard W

Starbucks appear to have been engaged in pretty aggressive transfer pricing by overpaying for royalties and debt finance.

Is it not the case that there are pretty firm HMRC rules on transfer pricing?

Should this not warrant investigation?

@8. Frances_coppola: “All we know is that Starbucks has had some negative publicity.”

That’s a blunt comment, Frances. But Starbucks employees will be completely incidental victims if a boycott kicks off. Starbucks employees, past, present and future are incidental victims.

I’ve never bought a coffee at Starbucks and never will. The controlled environment is not for me. Am I permitted to care about Starbucks workers?

@18. pagar: Is it not the case that there are pretty firm HMRC rules on transfer pricing?”

Perhaps. Then there are reality rules that govern international wealth exchange.

But how do Apple turn Yuan into Dollars?

@ Charlieman

But how do Apple turn Yuan into Dollars?

On foreign exchanges, I should think.

Actually, I think The Starbucks tax avoidance is not achieved, strictly speaking, due to transfer pricing- they are not importing cups of over priced coffee into the UK then selling them at no profit.

I’m guessing that they are moving the profit (and the tax liability) out of the UK by charging their franchisees high royalty fees.

I would have thought HMRC should have the ability to make the necessary adjustments and impose corporation tax on such charges, but I’m no expert and it may be a loophole.

22. Frances_coppola

@19 Charlieman

I confess I am no fan of Starbucks coffee either. But yes, I do care about Starbucks employees. I sincerely hope that the company does not suffer serious loss of business, or worse, withdraws from the UK as a consequence of this “negative publicity”: that’s 9,000 people who potentially might lose their jobs. Richard Murphy would do well to show some compassion for the people who stand to be hurt by his destructive commentary.

23. Chaise Guevara

@ 22 Frances

No comment on whether Starbucks’ behaviour is ok, because I don’t know. But your statement seems to add up to a blanket rule of “consumers can never hold companies to account, because companies have them over a barrel on account of employing people”.

In the hypothetical case that a coffee chain DID do evil, would there not be more long-term benefit in punishing them with boycotts, sending the message that such action will result in market failure, letting a better company move in on the resulting gap, and scaring other companies into cleaning up their act too?

On foreign exchanges, I should think.

Actually, I think The Starbucks tax avoidance is not achieved, strictly speaking, due to transfer pricing- they are not importing cups of over priced coffee into the UK then selling them at no profit.

I’m guessing that they are moving the profit (and the tax liability) out of the UK by charging their franchisees high royalty fees.

I would have thought HMRC should have the ability to make the necessary adjustments and impose corporation tax on such charges, but I’m no expert and it may be a loophole.

Francess @ 22

Don’t worry too much about Starbuck’s employees, because if these American parasites do withdraw from this highly profitable sector, then their prime sites will be snapped up by competent and decent competitors who ARE willing to be part of the society they feed off. Remember Starbucks forced thousands of small, independent cafes out of business that had no access to the vast array of tax avoidance schemes open to mega corps like Starbucks. Okay, I admit that none of them individually employed headline making 9,000, but I am willing to bet that all those two, threes and mores add up to a pretty healthy figure.

@25. Jim: “Remember Starbucks forced thousands of small, independent cafes out of business…”

Are you sure, Jim? Is it not possible that there are more coffee shops today than 20 years ago?

@26 one too many Starbucks, st least (http://news.bbc.co.uk/1/hi/england/sussex/7429400.stm).

Brighton is a prime example of a city with plenty of excellent, independent cafes and coffee shops.

@21. pagar: “@ Charlieman
But how do Apple turn Yuan into Dollars?

On foreign exchanges, I should think.”

It doesn’t work like that in China. Wealth created in China stays in China unless a government official determines otherwise. In China, some business people go to Macau to convert their Yuan into Dollars over the casino tables. They hand over Yuan for chips, play Red on roulette acknowledging that the odds are less than 50:50, and convert their chips into dollars.

There are western companies who are able to change Yuan. Apple was a bad example on my part because I reckon that they have the power to do it.


As Rooney argues, Starbucks manages its income by charging franchisees a lot of money which goes straight to the brand holder in the EU, which for tax purposes is not in the UK. On top of that, Starbucks control their franchisees to sell only Starbucks products.

I hate to think it, but perhaps Starbucks and other mega coffee house chains require some heavy intervention. The business mechanism seems like a 1980s pub chain.

Charlie @ 26

Are you sure, Jim? Is it not possible that there are more coffee shops today than 20 years ago?

Oh, it is entirely possible, dare I say probable? However, that does not mean that thousands of independent cafes, sandwich shops, burger vans and like have not suffered at the hands of these massive chains.

It is easy to say that ‘Starbucks’ (café Nero, Costa or whatever) have created ‘X’ number of jobs but what is the net effect of these chains on employment? How do we measure it? How do we measure the effect of me buying a coffee in the morning on the way to work instead of taking a packed lunch, or even the weekly last pint before heading home? Starbucks have not ‘created’ 9,000 jobs, they merely employ 9,000 people which is not the same thing.

Yuan is really a unit of currency like we say the pound. However, our currency is sterling and the units of the currency are pounds. Renminbi is China’s currency and 1 yuan of renminbi, 10 yuan of renminbi etc makes more sense.

The Peoples Bank of China maintains a currency peg with the USD. They need to maintain the currency peg because that is the mechanism they use to conduct their trade policy. In recent years the peg has been set undervalued to the USD and by extension every other currency. Hence why in recent years their trade surplus has ballooned.

To maintain the undervalued exchange rate means the PBoC must buy up all the foreign exchange generated through the trade surplus by Chinese exporters. Mostly USD but not dollars alone. If they did not buy up all the dollars, the renminbi would appreciate vis-a-vis the USD and the trade surplus would decline. The PBoC can always buy the dollars because their bid is always the best offer for banks looking to sell dollars. They buy the dollars with newly created renminbi that causes weird things to happen in China but that is beside the point.

If the USD is overvalued vis-a-vis the renminbi because of the peg, then obviously the renminbi must be undervalued. So exchanging renminbi for dollars in China must be a bad exchange rate because the other way is a good exchange. Macau casinos are probably offering a better exchange than the official rates in China caused by the peg.

Wealth created in China does not stay in China. The only way to keep capital in one place is not to trade with anyone. The only problem is if you do not trade with anyone you will be poor. As soon as trade enters the equation capital and wealth flow with the trade. As previously shown, changing renminbi for foreign exchange through official channels which is the only game in town for big players is a bad deal because the renminbi is undervalued. They are gradually liberalising their capital account that will allow these transfers to occur but that means the PBoC will gradually lose a fair degree of control in China.

Charlieman

I’ve never bought a coffee at Starbucks and never will. The controlled environment is not for me.

I like the Starbucks environment in the ones I go to because they are so easy going and you can stay there for as long as you like without thinking the staff want to get rid of you. Which might be the case at independent cafes. And I think their tall latte is quite nice if they put two shots of coffee in it.
Ask for it ‘extra-hot’.

Pay your tax!!!

Tax now!!!

@ Jim

However, that does not mean that thousands of independent cafes, sandwich shops, burger vans and like have not suffered at the hands of these massive chains.

“Margaret Gerving, chairman and chief executive of the Rose Petal Tearooms in Guildford, said: “The hot beverage market is like the Serengeti. I am a cheetah and Starbucks is an ageing wildebeest. I will feast on them.””

http://www.thedailymash.co.uk/news/business/starbucks-crowded-out-by-ruthless-independent-tearooms-2012101845489

@34 That is satire, and thus not real, you know?

I’m setting up a new Group to be called ‘Tax Evasion for Plebs’ and its mission is to help all of us 22 million tax-payers avoid paying tax. The other tax evaders say ‘what we do is legal’ and this will be too. HMRC may not like it but what’s good for the uber-rich is surely good for the rest of us, no? My problem is that I don’t know any lawyers or accountants who specialise in tax evasion. Can any of your readers help please? I e-mailed Dave about it, and got a note from his office saying he was watching his Sunday night movie and would get back to me. I e-mailed George as well, but all I got was a note from his aide saying he wasn’t available. Do you think that might have been his cute littel friend on the train?

37. Chaise Guevara

@ 27 Cherub

“one too many Starbucks, st least ”

That’s one of those stories where nobody comes out looking good. Coffee shop apparently just ignoring the law (am I missing something here, by the way? Seems like they’d be shut down) v.s. NIMBY spoilsports lead by someone who apparently can’t fathom that some people might like Starbucks when she doesn’t.

38. adam carter

Its far too convenient for joe public to jump on the tax avoidance bandwagon. Where is balance in this discussion? Look at how many jobs Starbucks has created across the UK, how much income tax and employers N.I. has been paid too. Add on top the economists’ ‘multiplier effect’ and you will come up with a number far greater the the level of tax avoided by Starbucks at a corporate level. Not everything in life is black and white, and here is a shade of grey whereby the price to retain entrepreneurship in the UK and to create jobs is to allow businesses tax breaks. Those who disagree have probably never been in business.

39. Chaise Guevara

@ 38 adam

Two points:

1) There’s a further shade of grey, in that the jobs created by Starbucks might well have been filled if Starbucks never existed, as there’s a good chance that the niche would be filled by someone else. Indeed, I wouldn’t be surprised if some Starbucks employees are people who used to work for a competitor defeated by Starbucks in the local market!

2) We need tax money as well as support for the economy. It seems fair to ask people who do business and turn a profit in the UK to pay tax in the UK.

A little less moralising, and a little more thought would be good.

What tax are Starbucks not paying, and why? Is there a loophole that needs to be closed? If yes, how can this be achieved?

41. Derek Hattons Tailor

@ 40 I’m an accountant. It’s not my area of expertise and I really can’t be bothered to explain it at 11 on a Friday night but basically transfer pricing happens through inter company trading (e.g Starbucks UK leasing the brand license from Starbucks Netherlands) practices which make it appear that the most profit is made in the country with the lowest tax rate and vice versa. What’s avoided is corporation tax in the country with the highest rate. It’s subject to some restrictions but in a highly globalised market a nightmare to regulate.


Reactions: Twitter, blogs
  1. Jason Brickley

    Starbucks is evidence that tax campaigning works http://t.co/EVJaTwVZ

  2. leftlinks

    Liberal Conspiracy – Starbucks is evidence that tax campaigning works http://t.co/AOmQzRcj

  3. per sunan

    Liberal Conspiracy – Starbucks is evidence that tax campaigning works http://t.co/AOmQzRcj

  4. BevR

    Starbucks is evidence that tax campaigning works | Liberal Conspiracy http://t.co/KcV69Vr6 via @libcon

  5. BevR

    Starbucks is evidence that tax campaigning works | Liberal Conspiracy http://t.co/4LKQyIo4

  6. Frances Coppola

    Starbucks: "the case that tax avoiding can harm shareholder value is made" | Richard Murphy http://t.co/0K86R9Lv via @libcon << No it isn't

  7. Bruce Reed

    Starbucks: "the case that tax avoiding can harm shareholder value is made" | Richard Murphy http://t.co/0K86R9Lv via @libcon << No it isn't

  8. Patrick Hadfield

    @solobasssteve might be a while – I've a long list of things to write about! Btw did you see this re #Starbucks? http://t.co/OITmHWpB

  9. BevR

    Starbucks is evidence that tax campaigning works | Liberal Conspiracy http://t.co/KcV69Vr6 via @libcon

  10. Michael H.

    Starbucks is evidence that tax campaigning works | Liberal Conspiracy http://t.co/ymviXRiQ Yes, say "taxpayer " when they ask your name !

  11. Saggydaddy

    MT @MichaelH14 Starbucks evidence that tax campaigning works http://t.co/bpOWuKcs Say "taxpayer" when they ask your name! < or don't go in

  12. Cosmic Landmine

    Starbucks is evidence that tax campaigning works | Liberal Conspiracy http://t.co/ymviXRiQ Yes, say "taxpayer " when they ask your name !

  13. Unlike a Starbucks latte, tax avoidance campaigns don't offer an instant hit | ccnew

    [...] Liberal Conspiracy, tax campaigner Richard Murphy notes that Starbucks’ reputation is at an “all-time low” following revelations of its tax arrangements. But is the company ever likely to change, if that has no effect on its profit [...]





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