Starbucks being hurt by not paying Corporation Tax


by Sunny Hundal    
5:15 pm - November 27th 2012

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Coffee company Starbucks’ unwillingness to pay Corporation tax in the UK is starting to hurt the company, shows research.

An in-depth piece of research shows that Starbucks suffered a huge backlash online after it was revealed piece of research shows paid no corporation taxes last year.

Worse still:

Satisfaction scores worsened further after Troy Alstead, the brand’s chief financial officer, appeared alongside representatives from Amazon and Google at a House of Commons Select Committee earlier this month.

‘Negative conversation has indeed increased, outweighing positive discussion,’ said Yomego chief executive Steve Richards. ‘Although Starbucks continues to attract followers on Facebook and Twitter, about 95% of comments contain references to the tax issue.’

No doubt some people will scoff at that but it shows that news of Starbucks’ tax avoidance has broken through to the public, in addition to the usual suspects, and they don’t like it.

What’s more worrying for Starbucks is that its tax avoidance may be used against it by competitors.

Since former Costa marketing director Jim Slater was promoted to managing director, it has shied away from ads attacking Starbucks. However, it is understood to be considering marketing activity that positions it as a business that ‘does the right thing’ in the UK.

It’s only a matter of time for tax avoidance to become part of someone’s marketing campaign to hit at competitors.

That’s when it will really hurt.

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About the author
Sunny Hundal is editor of LC. Also: on Twitter, at Pickled Politics and Guardian CIF.
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Reader comments


“No doubt some people will scoff at that but it shows that news of Starbucks’ tax avoidance has broken through to the public.”

I don’t think anyone will scoff, but rather say that it is too early to say whether Starbucks’ high profile tax avoidance has had any actual impact on sales.

Certainly the likes of Starbucks relies on a strong positive brand image that is potentially vulnerable to adverse publicity.

It will be interesting to see whether people care and, if so, whether they care enough to take their custom elsewhere.

However being a tax exile in Switzerland/Monaco never stopped the likes of Lewis Hamilton or Jensen Button from being popular and admired public figures.

I hope that if people switch away from Starbucks that they do so to smaller, local independent coffee outlets rather than Costa who are taking over high streets and running rough shod over local opposition and planning laws.

I can understand people’s anger at Starbuck’s. I boycotted the U.K. company, “BP” since 2005 when I noticed that I got 40% less miles per gallon on their gas (diluted!) and then the rest of America wanted to boycott them after the BP oil spill and learning that, we, the taxpayers would pay for the clean-up and that BP paid NO TAX in America. Grrr.

The citizen’s boycott didn’t put a dent in BP since our government buys their gas and oil from BP and has no interest in changing that.

Starbuck’s needs to start making decent coffee and then they can become the U.K. government’s coffee service for the military, prisons and royal house.

:D Brilliant, huh?

I would claim that Startbucks is badly hurt by not making profit in UK. Not paying tax on non-existing profits is then just a by-product.

Using tax avoidance as a marketing ploy to hit competitors may also backfire. As Margaret Hodge could testify.

5. Derek Hattons Tailor

I cancelled my Vodafone mobile after finding out about their lack of contribution – well that and their crap customer service.
I do find all this angst about Starbucks quite amusing though. When it first arrive in the UK it was full of metropolitan middle class hipsters who seemed to be fooled – by the liberal decor, trendy staff and sophisticated multiple choice of coffee flavoured milk froth – into believing it was somehow not a profit maximising multinational just like McDonalds.
Frozen yoghurt – it’s the future……..

No doubt some people will scoff because they think the only thing Starbucks cares about is making money and there’s no evidence people saying nasty things on Twitter makes any difference to that but they are clearly wrong.

7. Derek Hattons Tailor

What does Starbucks care about apart from making money ? I’m not saying that’s a good or bad thing but it’s a business, what else should it care about ?

PJT: if you believe Starbucks is not making money in the UK, you are a fucking idiot. It is a for-profit business. It is no longer in its growth phase. The company’s management, until the current fuss, had repeatedly referred to how strong UK performance was funding roll-out elsewhere.

Shinsei is right on the broader point. Sometimes PR shitstorms matter to consumers, more often, they don’t… how many people outside of Louisiana are still boycotting BP stations?

I’d bet this is another case where they don’t. Sure Starbucks is less essential and had further to fall than BP, but it’s been a major target of the antiglobalisation movement for a decade, and its effects on local businesses have long been criticised by left-leaning types.

The extent to which Starbucks’s trade is reliant on people believing that it’s ethical is far lower than many reports seem to suggest: it’s Maccas for the middle classes, not a den of hipsters and Occupy.

Of course Costly Coffee also employs people for £3/hr on “management training” which rarely provides a proper job at the end. I agree with bsk, go to a local cafe instead. (They are usually cheaper as well!)

I can’t see this having much effect on Google and Amazon either.

The simple fact is that Starbucks are paying the tax due, and that’s the end of it. Independent cafes may not be. Talk of “tax avoidance” is just irritating waffle.

There are two genuine problems arising, neither of which will be easy to solve:

1) Some companies in the EU may be paying insufficient tax, and paying some or all of it in the “wrong” place.

2) Corporation tax is just another cost: gaining a comparative tax advantage means gaining a competitive advantage. This has obvious and negative implications.

Labour should be looking at this, and urgently.

John B: if company is investing for expansion and therefore not making a profit, that is a perfectly legitimate reason for not paying corporate tax on non-existing profits.

They still pay many other types of taxes. The regular trick here is to compare paid corporate taxes (which are based on profits) to revenues (which are not the same as profits). People seem to confuse very basic concepts of corporate economics and then make a lot of noise for nothing.

Banti really puts it out well.

‘Negative conversation has indeed increased, outweighing positive discussion,’ said Yomego chief executive Steve Richards. ‘Although Starbucks continues to attract followers on Facebook and Twitter, about 95% of comments contain references to the tax issue.’

So long as their real profits exceed what they would pay in tax they couldn’t give a shit what the Twattersphere says.

They even have free Wi-Fi so you can Twat abuse at them while you drink your coffee.

PJT: oh, do learn how to read. *not* in its expansion phase. It is not expanding. Une cash vache.

And when reading company financials, revenues are irrelevant per se; but they’re relevant when compared with profits and taxes paid as a multiple of the same from other companies in the same sector, which is why Costa is considered a relevant comparator.

Either there are good business model differences explaining why Starbucks should be less profitable than Costa, or Starbucks is just managed by fuckwits, or Starbucks is adopting (doubtless legal) black arts to minimise its tax liability that aren’t open to Whitbread as a UK company.

@John B

Costa is not necessarily a good comparison with Starbucks.

For instance I understand (though haven’t checked) that Costa owns most of its sites whereas Starbucks rents its shops.

16. Man on Clapham Omnibus

8. Banti Singh

Here’s what I think – youre a tit!

The issue is how much have Starbucks traded on their ethical stance in the past, and how many of their customers are therefore those who consider themselves ethical consumers?

Boycotts didn’t make a dent in BP and Nestle, but they had a huge impact on The Body Shop.

Jack C @11 has it right IMHO

It’s hard to argue that Google being based in Ireland is ‘tax avoidance’ as they are complying with EU law re the single market & are presumably tax compliant, as are most of the other companies mentioned.

There’s a lot of blather from people like UK uncut and Richard Murphy about ‘fair share’ by which they mean what they have decided the amount of the tax due, because they know best & the law doesn’t count for them (obviously).

Starbucks is my favourite coffee shop as I like the bland chain-like experience where you know what you’re going to get. You can sit there as long as you like using their wi-fi and none of the staff care.
I couldn’t really care less about how they pay their taxes, because I’m not one of these ‘really concerned citizens’ and I think they provide a useful service.

I’m more fed up that I can’t afford to go to as many football matches as I’d like to, as it’s too flipping expensive. It was £34 for away fans at Elland Road on saturday. How about some campaigning about that?

20. Derek Hattons Tailor

Agree – £34 is a rip off to watch Leeds

21. Derek Hattons Tailor

Everyone who’s arguing that they are not doing anything illegal is missing the point. I don’t think anyone is saying that Starbucks are not paying “the right” amount of tax in accounting terms.
Through what sounds like an aggressive approach to transfer pricing they are minimising their tax liability, fair enough, their accountants are paid to do that and their shareholders will be pleased with to get the cash, rather than the taxman. Trouble is, like most multi nationals they are not returning the profit to shareholders, nor are they investing it, they are just sitting on a cash pile. The money is therefore not going back into the economy, not funding investment, nor public spending.
There is an argument that business only responsibility is to maximise shareholder wealth, minimising your tax bill is a natural component of that. There is an argument that business has wider social responsibility than to make money, which they can partly discharge through paying their “fair share” of tax. The problem is it’s doing neither.

“Tax avoidance” is definitionally legal (if it were illegal, it would be tax evasion), so people bleating “but it’s legal so it can’t be tax avoidance” are silly.

Shinsei: Costa certainly rents its high street sites. AIUI it also pays rent to its parent company for its sites at Premier Inns and so on, although this isn’t totally clear in the published accounts.

John B:

The claim that “tax avoidance is legal” isn’t quite as clear as you state.

This is what HMRC has to say on the subject:

“Tax avoidance represents a significant part of the UK tax gap. Unlike evasion, it is not in itself
illegal, but it involves using the tax law to get a tax advantage that Parliament never intended. It
frequently involves contrived, artificial transactions that serve little or no purpose other than to
reduce tax liability. And it enables some taxpayers to gain an unfair advantage, undermining
confidence in the tax system.”

Re Costa.

I think that was what I was getting at. Costa may rent a great number of its sites but these are often owned by its parent company. Thus the whole question of whether there is an intra-company subsidy going on rears its ugly head.

I know of people in retail who have been outbid for sites by Starbucks offering “market rents plus 10%” but I suspect Costa doesn’t pay these v high rents to its parent.

FROM:

WE CANT LEAVE THE EU!!! THINK OF THE IMPACT ON BUSINESS!!!

TO:

LOOK AT WHAT THESE BUSINESS BASTARDS ARE DOING USING EU LAW!

EQUALS:

FUCKING IDIOTS.

Shinsei: the inter-company pricing point is a reasonable one, but it’s worth bearing in mind that most Costa sites are also on high streets, shopping centres & airports, and that the parent company does not own the freeholds to any of these. It’s unlikely that accounting for rent on the few dozen Costas on Whitbread pub/hotel sites is going to significantly change the overall profitability of the group.

I’m in a Starbucks right now in suburban south east London. I’ve just counted more than thirty people in here and it’s quite an agreeable atmosphere. Some mothers in with their babies, several young children who seem to like being in here and sitting on the sofas by the window.
Older women who like to come in for a chat with their friends. And after school, you get school pupils in here, which is a good mix I think.
It’s much better than what used to be here in the way of coffee shops and cafes. One I remember, was one of those ”Olde English teas shops” which was far too fussy I found and wasn’t for lingering in.

Rather than just knocking places like this, how about some defence of such spaces? It’s an asset to have on the high street IMO. A place where you know you can go into and relax without any fuss.

@21 DHT

from the Channel4 News report this week Starbucks aren’t even handing over the tax savings to their shareholders. The money sits in Bermuda doing nothing, for some reason.

28. Derek Hattons Tailor

@ 23 Being part of the tax gap doesn’t indicate legality one way or the other. Corporates will run their tax strategies past HMRC before implementing them to get an indication of treatment. The evasion/avoidance difference is tested on a case by case basis, not helped by the fact that we have the most complex, or at least the largest, tax code in the world, and it seems to get more so with every budget.
Two ways around it that I can think of – some sort of world wide tax arrangement – agreement highly improbable, given that at the moment there isn’t even an enforceable global accounting standard – or tax levied on revenue at source rather than profit at incorporation – More feasible as already happens with purchase taxes, but would probably have unforseen consequences/create perverse incentives.


Reactions: Twitter, blogs
  1. David Giles

    Starbucks avoids Corporation Tax -> consumers attack it vociferously and competitors may use that against it http://t.co/in7Pbk6x

  2. Michael H.

    How Starbucks is being badly hurt by not paying Corporation tax | Liberal Conspiracy http://t.co/FyLp70GD via @libcon Tax issue in marketing

  3. Matthew Greener

    Starbucks avoids Corporation Tax -> consumers attack it vociferously and competitors may use that against it http://t.co/in7Pbk6x

  4. Lord Kennedy

    How Starbucks is being badly hurt by not paying Corporation tax | Liberal Conspiracy http://t.co/FyLp70GD via @libcon Tax issue in marketing

  5. David Gillon

    Starbucks avoids Corporation Tax -> consumers attack it vociferously and competitors may use that against it http://t.co/in7Pbk6x

  6. R Niall D Martin

    My blog-post > How Starbucks is being badly hurt by not paying Corporation tax http://t.co/STQWaIga

  7. The Taxman

    Starbucks avoids Corporation Tax -> consumers attack it vociferously and competitors may use that against it http://t.co/in7Pbk6x

  8. Paul Fonseka

    Starbucks avoids Corporation Tax -> consumers attack it vociferously and competitors may use that against it http://t.co/in7Pbk6x

  9. Peter Pink

    How Starbucks is being badly hurt by not paying Corporation tax http://t.co/pt5XoRf7 via @zite

  10. Jack Barker

    How Starbucks is being badly hurt by not paying Corporation tax | Liberal Conspiracy http://t.co/IMq9uzyu via @libcon

  11. wbmedia

    Starbucks tax avoidance hurting the company & brand – http://t.co/YTd4iJyf – via @sunny_hundal

  12. Anne Joynes

    Starbucks being hurt by not paying Corporation Tax | Liberal Conspiracy http://t.co/Rs4vKiQ5 via @libcon

  13. Wullie Baxter

    Starbucks being hurt by not paying Corporation Tax | Liberal Conspiracy http://t.co/xu9HjAca via @libcon

  14. Wullie Baxter

    Starbucks being hurt by not paying Corporation Tax | Liberal Conspiracy http://t.co/xu9HjAca via @libcon

  15. Mumbling Malone

    RT @libcon How Starbucks is being badly hurt by not paying Corporation tax http://t.co/7v5g72LN #MoneyTalks

  16. Joseph Patrick

    Starbucks being hurt by not paying Corporation Tax | Liberal Conspiracy http://t.co/wJhAJbPA via @libcon





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