Questions for Starbucks that their tax press release begs that they answer

Posted on October 18 2012

I've just posted the Starbucks press release on its tax affairs, which virtually ignores the question of tax.

I think the release begs a number of questions, such as:

Starbucks says it's here for the long term. But why if it's making a loss as its accounts say? Might they explain?

or

Starbucks says it has "the highest ethical standards". Tell me this then Starbucks. Is getting round the law ethical?

And whilst we're at it:

Starbucks says it will pay tax "to the letter of the law". Isn't that what all tax avoiders say?

And maybe this too:

Are your accounts true and fair when you tell your US shareholders that your UK operation is really profitable and yet the audited accounts show a loss? 

There's a bonus one too:

How can you say you "demonstrat[e] [y]our commitment to all the communities where our partners (employees) and customers live, and where we do business every day" when you make sure you don't pay for those communities and what they need? 

I'll be happy to publish the answers.

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2 Responses

  1. Ben says:
    October 18 2012 at 12:12 pm

    Can somebody more experienced in these matters clear something up? Presumably when Starbucks UK (and other companies) pays another group entity a ‘royalty fee’ for the right to use the logo and other intellectual property, and this is subject to transfer pricing rules to prevent profit shifting out of the UK.

    If a company is paying a fee that means that it consistently makes a loss, how does it justify that the price paid is fair price? Surely, in an arms-length transaction, a company would not pay a royalty fee to an unrelated third party that would mean that it could never make a profit on its operations? How does this work?

    (Just to make clear to any of m’learned friends: I am not implying that Starbucks has done anything illegal. I am merely wondering how our tax law works to allow such arrangements to take place)

    • Tom says:
      October 19 2012 at 4:17 pm

      If Starbucks had a small number of stores, then it could be quite believable that it didn’t make a profit if the intention was to dramatically expand the store base and hence the central infrastructure in the UK was currently expensive relative to revenues. But given Starbucks large store base, that is obviously not the case.