Star-broke? Coffee Chain Claims Poverty to Pay Less Tax

Oct 18, 2012   //   by Keith McDonald   //   Commentary / Editorial  //  4 Comments

I don’t wonder that I’ve always preferred coffee from smaller chains and independent shops. It certainly doesn’t tend to come with the bitter aftertaste of corporate greed.

And I can’t be the only one, because poor old Starbucks is supposedly suffering from a massive caffeine overdose, making substantial annual losses of £33 million in the UK. We haven’t suddenly given up on coffee, of course, but Starbucks has given up on the idea of paying tax.

Despite muscling independent coffee shops and smaller chains out of the market, the coffee giant has been using a string of inventive measures to avoid paying corporation tax in the UK. The chain hasn’t paid any in three years, and it’s paid a meagre sum of just £8.6 million in its 14 year history of trading in Britain despite revenues topping £3 billion.

Creative Accounting from Starbucks

How is Starbucks managing this? Well, firstly, through its supplies. It buys its beans through a Swiss firm. Secondly, through ‘funding’: the firm funds the UK arm of the company through loans that charge high interest rates to be paid back to other divisions in lower tax regions. Thirdly, and perhaps most absurdly of all, through royalties. The UK arm pays royalties to other divisions of the company for the right to use the company’s own brand here. (I’m not sure we care what colour the cups are, if it helps…)

These manipulative practices are all designed to siphon money out of the UK business to avoid profits, upon which the firm would expect to be taxed at the going rate. And with the government already facing embarrassment over the numerous loopholes that allow tax avoidance, another round of allegations that the rich enjoy insurmountable advantages will surely follow.

“Think before you drink” is the clear message emerging from furious protestors. Figures from last year show that heavy coffee drinkers can spend over £2,000 of their hard-earned cash every year at Starbucks. And according to RealCoffee.co.uk, Britons spend a total of £730 million per year on the stuff.

But do we really care about where we get it from? Many of us have taken the Fairtrade campaign to our hearts (though it’s not applied with equal scrupulousness by participating firms), but what about the interests of the UK taxpayer? Many fed up consumers have been woken from their perpetual apathy to change banks this year. It will be interesting to see whether this revelation is met with a meaningful response – a force majeure – by the British coffee-drinking public.

F’Coffee?

It’s probably naive to ignore opportunity cost, even as we find cause to impugn it. Negotiating cosy deals with large corporations may sometimes be a necessary evil to avoid total relocation offshore and even bigger losses. Competitiveness is vital, and despite its twisted flax, healthy too.

But this coffee chain, if one forgives the pun, is taking the biscuit. With a grand UK coffeepot of £730 million in revenue to fight for, it’s not likely to endanger itself, even with a clampdown. And if it does, it’s more than expendable. Perhaps more will come to brace the friendlier, better value, law-abiding, socially beneficial indies instead. Everyone a winner.

Will you continue to buy from Starbucks in light of its attitude to tax? Let us know by leaving a comment below
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  • Dan

    Great article. Really made me think about going to Costa instead for my coffee.

  • cameron

    Aren’t all coffee chains the same? And Costa Coffee should be renamed “Costa Fu**ing Fortune” all of them are rip offs.

  • Coffee king

    I agree they should stop serving the coffees with gold dust sprinkled on top, or maybe start a tax avoidance scheme and con the government out of millions of pounds.

  • Keith McDonald

    Are we thinking they should downgrade to copper dust? My favourite chain has always been Coffee#1 based in the South-West, which I used to visit when it was only two stores old. I’m glad to see that it has expanded in the last few years, because it deserves to. At the moment, I try and support my local shop in Leicester, which currently opens only 1-2 days a week (when it can afford to, I imagine). They provide a decent large latté for £1.60, and there’s always a freebee included. Not all coffee shops are embroiled, and the smaller ones will all be paying their fair share of tax. It’s more RIP than rip-off.