Starbucks’ tax arrangements store up trouble for the brand

This week Starbucks was identified as a company that has used creative accounting to avoid paying any tax in the UK for three years, a period in which sales reached £1.2bn, and when its senior executives were on record as praising the UK financial performance

A special report by Reuters explains how the accounting scheme works:

We have identified three cunning, although legal, methods by which Starbucks has been able to avoid paying taxes to Her Majesty’s Revenue & Customs (HMRC), Britain’s tax authority. They involve payments between companies that fall under the greater Starbucks corporate group. By charging subsidiaries high-priced royalty fees on intellectual property, requiring chunks of funds be allocated to other subsidiaries in the supply chain, and shifting money to low-tax areas via inter-company loans, Starbucks has been able to essentially make its reported profits in the U.K. vanish into the foggy London air.

The practice of charging royalties on intellectual property is a method pioneered by tech companies like Google and Microsoft, and is used by Starbucks to drastically reduce the amount of taxable income it must report. Starbucks charges its international operations, including its U.K. unit, fees in order to use various elements of the corporation’s intellectual property, such as its brand and business processes.

Starbucks’ high ethical standards

LWD had been following Starbucks as an example of a company placing diversity at the heart of its corporate values. Its own website reads:

“Aside from extraordinary coffee, Starbucks has made a business out of human connections, community involvement and the celebration of cultures. We’re committed to upholding a culture where diversity is valued and respected. So it’s only natural that as a guiding principle, diversity is integral to everything we do.

Starbucks is dedicated to creating a workplace that values and respects people from diverse backgrounds, and enables its employees to do their best work. We honor the unique combination of talents, experiences and perspectives of each partner, making Starbucks success possible. As such we expect our partners to act with a spirit of kinship, tolerance and humanity toward all customers making our brand welcoming to everyone.”

The welcoming brand

Starbucks places ethical standards at the heart of its operations. It leaves it more vulnerable to damaging attacks on its integrity through stories of its global financial arrangements.

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