Starbucks: Would you Like Some Tax with your Latte?

While many of you may have been rushing to get your ‘iconic’ Christmas Red Cups from the hallowed espresso machines of Starbucks, you probably didn’t think it would cost you more than the £3.30 you normally spend for your Grande Gingerbread Latte. Yet, for Starbucks, as well as other multinational companies, tax avoidance schemes have cost the UK and governments across the world unknown billions.

Image courtesy of Esparta Palma, ©2007, some
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Foreign tax havens have long been seen as a privilege of the rich; if you’ve got money, then it’s your right to save it wherever in the world you want. Recent allegations, however, have exposed the far-reaching and morally questionable tax avoidance policies of multimillion-pound global corporations. While in many countries it may be technically legal to relocate parts of a business overseas to reap the benefits of low corporate tax rates, this practice effectively strips wealth from the site of production and corporate ownership to protected offshore accounts, never to be seen again. The revelations of Starbucks’ abysmal UK tax contributions, only £8.6 million out of £3 billion sales in the UK in the past 14 years, have sparked public outrage and a UK parliamentary investigation. Surely a company worth £25 billion worldwide can afford to pay the UK government tax on profits made in the UK. Apparently not, as the coffee giant has only reported a taxable profit in the UK once in the last 15 years.

Starbucks is not the only global corporation to recently fall from grace in the eyes of the average taxpayer. A Starbucks representative joined representatives from Amazon and Google at a hearing to discuss their tax policies in front of the UK House of Commons Public Accounts Committee on 12th November 2012. It transpired that these companies have been manipulating their accounts to channel funds through tax havens. Matt Britten, Vice President for Google Sales and Operations admitted to the company running its UK business from its Irish subsidiary for the sole purpose of its 12.5% corporation tax rate, subsequently moving profits offshore to Bermuda to avoid tax. Likewise, orders on are actually listed as being made to Amazon’s European company, based in Luxembourg, so that profits are recorded in Luxembourg and taxed accordingly, regardless of sales actually occurring in the UK. These companies believed themselves to be quite within their rights in pursuing these policies, citing the responsibilities of corporations to not only play by the rules, but moreover to manage costs efficiently to satisfy the interests of their shareholders. With the existence of legal tax loopholes making it easier for companies to increase their profits, from a business point of view it would be stupid to pass up such a gift.

Although this argument is somewhat convincing, it brings to question whether the responsibility of providing shareholder satisfaction overrides the fundamental obligation to society at large to pay taxes. Just as people living in a particular country are expected to pay tax contributions to finance the services they receive from the government, companies should pay taxes in the countries they sell their products to make a profit. A good business environment is a service like any other governmental provision. Not only are governments being robbed of much needed revenue through tax avoidance schemes, the sheer market share these multinational corporations occupy means they squeeze smaller local and national businesses out of the market. As high streets up and down the UK, and increasingly all over the world, become replicas of each other, local businesses are crumbling. How can conscientious, tax-paying small business owners possibly be expected to compete with ubiquitous global brands that make millions and can flout tax obligations whenever they want? Even well established companies are not immune, with John Lewis calling for the creation of a level business playing field, saying it could go out of business at the hands of tax-avoiding multinationals.

This whole debate raises the question of to whom multinational corporations are really accountable to. Can we really believe such companies when they claim that they “absolutely do nothing to avoid taxes”, like Troy Alstead, Starbucks Global Chief Financial Officer said at the Public Accounts Committee hearing? Unlike with domestic taxation, there is no global authority to hold multinationals to account, and not being tied to a specific territory, corporations can vote with their feet if they deem a country’s tax rate to be too high. If strict tax codes are at least part of the driving forces behind job relocation and profit offshoring, then perhaps public anger should not be directed at the companies that play the system, but the governments that create the system and allow the continuation of such policies. Governments should weigh up the benefits of the potential revenues of high tax rates, for example the 35% corporate tax rate in the US, but be aware that this may have the opposite effect of high revenues, through the risk of being lured elsewhere by cheaper rates. The consequences of this dilemma can clearly be seen in the $1.2 trillion of US profits trapped in overseas accounts, which will not return to the US, as they would be taxed at 35% to do so. The $60 billion a year lost to the US government from companies relocating to tax havens would be welcomed with open arms by any government, nevermind one still operating in the wake of a global financial crisis and economic recession.

Ultimately, the only way to stop tax avoidance policies is for governments to close loopholes and ensure their tax codes are fair and conducive to business interests, while at the same time not solely and heavily placing tax burdens and public spending cuts on the average citizen. It’s a fine line balancing the interests of business, taxpayers, and consumers. Yet until tax reform happens, how many of us would be willing to boycott offending companies to show them that this behaviour is not acceptable? Would you give up your Starbucks coffee for your local coffee shop?