Starbucks angers Brits by dodging taxes (legally)

American coffee giant paid .27 percent tax rate since 1998

By Nicholas Nehamas

Demonstrators protest outside a Starbucks coffee shop in central London. (Reuters)

Like most of the working world, you’re probably starting the week off with an invigorating cup of coffee. But if it’s from Starbucks, you’re drinking the most reviled caffeinated beverage in Britain. Why? Because since 1998 the Seattle-based chain has somehow managed to pay only $13.76 million in taxes on almost $5 billion in British sales.

Using a perfectly legal maneuver — one popular with multinational companies in the U.S. and around the world — Starbucks transferred much of its British revenue to the Netherlands, where it could be taxed in a lower bracket. Despite the fact that the American company has posted only one profitable year since hopping the pond 15 years ago, angry Brits are now staging a series of protests and boycotts aimed at shaming Starbucks. The controversy has turned into a proxy war over Prime Minister David Cameron’s austerity cuts, which critics say disproportionately affect women, minorities and the poor. In The Guardian, Robert Booth explains:

The home of the gingerbread latte and caramel macchiatto will be targeted by protesters with a series of actions that illustrate how the coffee chain has become the focus for a series of political battles. Campaigners plan to turn Starbucks premises into temporary “women’s refuges” as a comment on how government cuts, aggravated by corporate tax avoidance, are hitting women hardest.

The bad press could have a negative impact on Starbucks’ bottom line. Gary Davies, a professor at Manchester Business School, tells The Guardian “the worst case scenario [for Starbucks] would be a decline of up to 24% in next year’s sales.” That’s a lot of unsold venti frappucinos and no laughing matter for the coffee giant. Starbucks has now offered to stop using the loophole and pay $32 million to the British Treasury over the next two years.

A top executive explained that Starbucks had “listened to its customers” and was going “beyond what’s required by the law, and we’re going to do it, whether or not we make a profit in the next two years.”

But the protestors are still frothing like over-steamed milk, and left-leaning members of Parliament have called Amazon and Google “immoral” for employing similar tax avoidance strategies. Meanwhile, conservative Members of Parliament say Starbucks’ voluntary donation could set a “dangerous precedent,” according to The Financial Times. One Tory called the situation a “farce,” adding that the “bullying” of Starbucks could lead to “democratic anarchy.”

What’s good for the gander . . .

Cameron has responded to some public pressure, saying he will increase funding for Britain’s tax collectors and work to reform the tax code. His government also announced it will further cut the corporate rate from 22 to 21 percent in order to attract more multinationals.

It’s a debate we’re paying attention to here in the States, and not just because Starbucks is an American company. Multinationals in the U.S. use similar techniques to legally lower their tax obligations, as The Washington Post reports:

In the United States, corporate taxes have been heatedly discussed amid the looming fiscal cliff and a more sweeping overall of U.S. tax codes planned for next year. With U.S. multinationals holding an estimated $1.7 trillion in earnings abroad to avoid the relatively high U.S. corporate tax rate of 35 percent, calls are growing to effectively mirror at least some of what Britain has set out to do: lower legal rates, while cracking down on ploys used by companies to avoid paying corporate tax.

No matter what happens in Britain and the U.S., Starbucks is determined to become a global brand. The China Digital Times notes that while other big names like McDonald’s have seen slow growth in China, the coffee conglomerate has plenty of room to expand. A Starbucks latte costs more in Shanghai than in San Francisco.