Corporate Tax Evasion

Historic claims made by Starbucks executives in little-scrutinised briefings to analysts and shareholders laid the way for the company to be slammed in a report by MPs today. The multinational is accused by the Public Accounts Committee of conniving to avoid corporation tax by pretending to be unprofitable in the UK — ‘exporting’ the real profits to jurisdictions with lower tax rates:Starbucks told us that it has made a loss for 14 of the 15 years it has been operating in the UK, but in 2006 it made a small profit.Starbucks claimed to the committee that it has been difficult for us to make a profit in the UK. Indeed, 2007 was ninth year in ten that the company filed losses in the UK. Strange, then, given that annual reports singled out the UK as one of the company’s cash cows:In particular, our Canada, Japan, UK, and China MBUs account for a significant portion of the net revenue and earnings Annual Report 2011Revenues from countries other than the US consist primarily of revenues from Canada and the UK, which together account for approximately 66% of net revenues Annual report 2009But it was phonecall briefings to analysts from this period in which Starbucks really screwed themselves over:On the release of quarterly earnings figures in 2007, then Chief Operating Officer Martin Coles told analysts that the profits from the UK were being used to pay for expansion in foreign markets
CEO Howard Schultz claimed that Starbucks’ UK arm was so successful that he would adapt lessons learned here for the American market
Again in 2007, then-Chief Financial Officer Peter Bocian claimed Starbucks UK had pulled in profits margins of nearly 15 percent almost 50m
Despite that impressive roster of duplicitous statements, it would take something to top claims made in respect of 2011, where Starbucks’ accounts department would have us believe the UK business made losses of 33m. At the time, executive John Culver told investors:We are very pleased with the performance in the UK.But CFO Troy Alstead told the select committee:We are not at all pleased about our financial performance [in the UK].

petrophysiics1 writes:Ok, so Starbucks doesn't think it can charge 2.30 without losing business and more importantly without making less money.Charge more sell less, charge less sell more. Somewhere there is a price which brings in the maximum amount of money. I am quite confident that Starbucks has looked at that and came up with a price arround 2.10.Now if you increase Starbucks cost of doing business they will make less money, less return on investment. If they can raise the price and do the same volumne they will do that. That is highly unlikely as if that were so the price would be higher right now.

Coffee chain Starbucks has agreed to pay more UK corporation tax, after a public outcry over how little it pays.Kris Engskov, managing director of Starbucks UK, announced that the company would pay "a significant amount of tax during 2013 and 2014 regardless of whether the company is profitable during these years".The extra tax could amount to 20m over the next two years, he said."We know we are not perfect", the boss of the coffee chain added.The company admitted that the degree of anger and emotion surrounding the tax issue had "taken us a bit by surprise" and that the move was an attempt to rebuild trust with its customers."Since we started doing business here, we have always organised our tax affairs according to the letter of the law," said Mr Engskov.But he maintained that the company had found it difficult to make profits in the UK, which has "the most competitive espresso market in the world", despite "two million customers visiting us each week in hundreds of stores across the UK".Companies pay corporation tax on any profit they make in the UK, not their revenue or takings. Hence allegations that multinationals move money to other countries to reduce how much tax they pay in the UK.The extra tax payments will be funded by not claiming "tax deductions for royalties or payments related to our intercompany charges", Mr Engskov said.Starbucks has 760 outlets across the UK and says it contributes "300m to the UK economy" each year.