When you’ve got protestors outside your store with signs saying ‘Starbucks has paid no tax in the UK since 2009″ and women holding up an adapted version of your logo that now reads ‘Refuge from the Cuts’ along with the statement ‘74% of £15billion benefit cuts taken from women’s income’…you know you’re in trouble. I’ve been going on ‘Anti-Corporate’ marches since the 90’s, talking with protestors and reading everything I can get my hands on, to get a clear idea of the issues facing brands and the actions that they must take to regain the trust on which they rely so deeply.
Anyway, for the latest update on the Starbucks situation, checkout this latest tweet/update from The Economist…
“THIS is an unprecedented commitment,” said Kris Engskov, the boss of Starbucks in Britain and Ireland, on December 6th, announcing that the coffee retailer will volunteer to the British taxman around £10m ($16m) a year more in 2013-14 than it is required to pay by law. It is doing so not under any pressure from the authorities, which had not been party to the firm’s decision to donate an extra shot of cash to the exchequer, but to please British consumers furious not, as you might expect, at the high price of a latte, but at how little tax the firm pays in their country. “We’ve heard that loud and clear from our customers,” said Mr Engskov.
Alas, this pioneering effort to transform tax into a marketing expense did not elicit the hoped-for gratitude. On December 8th UK Uncut, a group which campaigns against government austerity and corporate tax avoidance, staged protests at dozens of British Starbucks stores. Campaigners point out that since first opening its doors in Britain in 1998 Starbucks has paid only £8.6m in corporate income taxes there. In testimony last month before a parliamentary committee, Starbucks had said this was because it had made a profit in only one year in Britain, though it also admitted that its British business had made large payments for coffee to a profitable Starbucks subsidiary in Switzerland and large royalty payments to another profitable subsidiary in the Netherlands for use of the brand and intellectual property.Starbucks is not thought to be using the “Dutch Sandwich” and “Double Irish”, even if these sound like items on its menu. They are legal tax-avoidance techniques believed to have been used by, among others, Google, which was also called to testify before Parliament. Most of Google’s revenues in Europe are booked in Dublin, then shifted via royalty payments to a Dutch subsidiary, before whatever is left is recognised as profits by a subsidiary in Bermuda, which levies no income tax. Another online giant, Amazon, told parliamentarians that its low British corporate-tax bill—£1.8m in 2011—was due to its British operations merely providing back-office services to its main Europe-wide business, which is based in low-tax Luxembourg.
Although Starbucks denies using tax havens, it admits to having negotiated a secret low rate of tax with the Dutch taxman for its subsidiary in Amsterdam. Worldwide, it says it pays out over 30% of its profits in tax. Many other firms are making extensive use of havens. A study published last year by ActionAid, an activist charity, said 98 of the firms in the FTSE 100 index have at least one subsidiary in a haven. An increasingly popular strategy is to transfer ownership of the multinational’s main intellectual property to a subsidiary in a tax haven, then charge other subsidiaries in higher-tax countries for use of it. Data compiled by the OECD, a rich-country think-tank, highlight how many patents are owned by outfits in such unlikely innovation hubs as Barbados, the Cayman Islands and Bermuda.
In both Britain and America, businesses have been lobbying for cuts in marginal corporate-tax rates, even if this meant losing a few small loopholes, and had started to get somewhere. Their arguments were bolstered by a study in June from the Centre for Business Taxation at Oxford University, which found that the two countries had among the world’s highest effective tax rates (ie, after allowances). Barack Obama, having failed in 2011 with an attempt to cut America’s headline tax rates while eliminating some exemptions, has made a similar proposal as a carrot to the Republicans in the “fiscal cliff” talks.
Now, though, the public outrage being whipped up over the most lucrative avoidance strategies may cause politicians to shift their focus from making taxes more business-friendly to shoring up the tax base. George Osborne, Britain’s chancellor of the exchequer, has responded to the furore over Starbucks, Google and Amazon by promising to use the country’s imminent chairmanship of the G8 club of rich countries to wage war on tax havens. Politicians elsewhere, also facing swelling deficits, may join him in that.