Don’t Blame Starbucks

20 10 2012

Category; Finance, Law, Media, Politics


It’s easy to get worked into a schiuma by the revelation that Starbucks hasn’t managed to pay any corporation tax in the UK since 2009 – click here for report. Big turnover is, apparently, eaten away by expensive licensing royalties to an overseas subsidiary (Holland) of the Starbucks parent company, expensive beans bought from another overseas subsidiary (Switzerland) and then roasted by yet another overseas subsidiary (Holland).

Politicians and journalists are gleefully calling for a boycott of the company that doesn’t ‘pay it’s share’see here and here. But it’s very simple.

Starbucks operates in a financial system that allows it to do these things. It was checked out by HMRC in 2010 and given the all clear.

In a free market system where a company can use the tax law in its favour, it must. It has to; there is no discretion. If it weren’t to do so senior executives would be at risk of dismissal and legal action for failing to look out for the best interests of their company.

If that sounds like a pretty lousy system, you’re right. But don’t blame Starbucks; blame the politicians, regulatory systems and legal systems that ensure that’s how things work. That of course is a much more complex, difficult and less headline-grabbing thing to call for than simply hissing at a large US-based multinational.

For a thorough investigation of how another US multinational does its utmost to avoid global taxation; click here for the New York Times investigation into GE



One response

30 03 2013

January 6, 2013

David comments by email:

Your Starbucks comments manage to evade the truth.
For example, at what price are the coffee beans ‘bought’ by U.K. Starbucks from Swiss Starbucks, how does that price compare to a comparable product available from U.K. sources, and can a case be made that the primary objective of buying the coffee from Swiss Starbucks was tax evasion. One could go further; is the Swiss operation fully functional or a one desk office; is the coffee shipped to, or stored there, or is the coffee shipped direct from producers to U.K. etc., and what markup does the Swiss company take on the coffee and how does that compare to typical markups in that sector of the industry.
What I’m suggesting is that tax laws that are put in place to facilitate the modern multi national organization are being used, by misspricing transfers of product or ‘rights’ or technology etc, to defraud.
I grant you that it can be a challenge to determine what the appropriate price is, for the transfer of a widget, a piece of information or the right to use a trademark, but the fact that a very low tax juristiction is involved on the ‘sale’ side suggests the main motivation for the exercise; the temptation to stretch the pricing to achieve extra profit is likely difficult to resist, especially when the tax collectors in the U.K. don’t bother to do the serious work required to uncover this very common variety of tax fraud.

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