There has been a bit of a storm in a coffee cup today as it has come to light that Starbucks has paid next to no corporation tax in the UK since it opened here in 1998. Since then, the company has made over £3 billion in sales but has paid only £8.6 million in income taxes. In 2007 Starbucks' UK unit's accounts showed its tenth consecutive annual loss.
The mechanisms that Starbucks is using to achieve an overall loss in the UK are remarkably similar to those we discovered the second largest beer brewing company in the world, SABMiller, was using to avoid paying tax in a number of developing countries.
The first one is through paying royalties. Starbucks UK has to pay royalties (6% of sales) for the use of the company’s brand and business processes, money which is sent to a Dutch subsidiary based in Amsterdam. Exactly like we found SABMiller subsidiaries doing right across Africa. Once the money gets to the Netherlands it is miraculously whittled away leaving small taxable profits there too.
Another ruse Starbucks are using - just as we found SABMiller up to - is to buy the inputs for their product through a tax haven. Starbucks UK buys its coffee beans from the Starbucks roasting company in the Netherlands which in turn pays out 84% of its revenue to the part of the company that supplies the coffee beans - from Switzerland! Interesting that the tax rate on profits from trading commodities such as coffee in Switzerland is a measly 5%.
It is a scandal that these tricks allow Starbucks to avoid paying a fair amount of tax on their business in the UK. It’s also a powerful reminder that if multinational companies get away with it in the UK where we have a sophisticated revenue department and established law on this stuff, how much easier must it be for them to wipe out their tax bill in developing countries where those things are much weaker. In the UK Starbucks’ tax-free coffee is pricing out independent coffee shops, in countries like Ghana and Malawi where domestic businesses desperately need to be nurtured the same thing is going on.