Stupid, stupid, Starbucks

Today, I am announcing changes that will result in Starbucks paying higher corporation tax in the UK – above what is currently required by law. Specifically, in 2013 and 2014 Starbucks will not claim tax deductions for royalties or payments related to our intercompany charges. In addition, we are making a commitment that we will propose to pay a significant amount of corporation tax during 2013 and 2014 regardless of whether our company is profitable during these years.

I have a feeling that this might actually make them liable to shareholder suits.

To pay all the tax you should is one thing. To pay more than that, voluntarily and knowingly, would seem to be risking breach of fiduciary duty.

I\’d like to highlight a few details behind these commitments. To be clear, Starbucks UK will not claim deductions:

• For the royalties it pays

• For the intercompany profit on the coffee it purchases

• For interest paid on intercompany loans

• For capital allowance deductions nor our carry-forward losses

The first three are all changeable by the company itself anyway. Change the royalty rate, change the interest rate etc. But that last is ridiculous. Not claim the cost of fitting out a shop against tax?

24 thoughts on “Stupid, stupid, Starbucks”

  1. ” For capital allowance deductions nor our carry-forward losses”

    Does rather indicate they are not planning on doing much more investment into the UK doesn’t it?

  2. I have just been reading the full-page spreads, gobsmacked. What sort of temporary insanity seems to have possessed Kris Engskov?

    It would have been far easier (and acceptable) to give the PAC a gun and car and tell them to go around the country raiding Starbucks’ cash registers.

  3. Dear Mrs Hodge

    In light of Starbucks acquiescence on corporation tax, will you ensure that Stemcor’s tax arrangements are in order?

    Kind regards
    Henry Crun

  4. So Much For Subtlety

    Has Europe seen anything like this sort of mob hysteria whipped up against the law-abiding since, well, when was the last pogrom?

    We should mourn the passing of liberal Britain.

  5. I am now boycotting starbucks. And will continue to do so until they stop paying tax they don’t owe.

    (Actually, this isn’t strictly true. I don’t really like starbucks. I just started going over the last month to support their stance over tax. Now I can stop again.)

    I hope amazon don’t follow suit. Because a) it means their prices will rise and b) a boycott of them would really fuck up my shopping habits.

  6. No shareholder suit, since the potential damage to reputation had reached a point that would potentially have seen greater losses from a consumer boycott. Well within managerial competence to decide. Not impossible that others with a footprint here may decide to do the same. At the margin may reduce the UK’s attractiveness as a place to do business.

  7. Am I too cynical to think that Starbucks will effectively only have passed the buck ? More money given in tax here will be easily shown to be less money in profits elsewhere, hence less tax to pay there. As a multi-national, it can shift expenses around quite a lot, so this is a good thing to do in PR terms, probably costing them very little indeed.

    Alan Douglas

  8. Ian B (@2)

    I can recall one superb Salisbury Review article from about a decade ago contrasting the Left, and people like Murphy with organised crime. In most cases, the Mafia like organisations came out rather better in understanding that:

    ‘If one is fond of Golden eggs, probably best not start shooting Golden geese’

    Who will this truly evil man turn his attention to next?

  9. So I agree that they’ve done the wrong thing by donating tax. The Government need to address that…

    I think they should have given it to invest in to entrepreneurial ideas for the poorest communities along with Amazon and Google. The current government have forgotten them, and as the gap between the rich and poor widens this would help empower a new generation of entrepreneurs.

    I wrote an open letter response to Kris Engskov with a bunch of suggestions.

    Love your thoughts…

  10. Very interesting Caleb. And so much more inspiring than tax and spend. I’ll be back to read more of your blog.

  11. Buy your coffee from Costa. The cappuccino is still a little milky – though not as bad as the awful Starbucks – but not far short of the quality routinely found here in Italy.

    Visiting recently, I was impressed by their caffe macchiato. Strongly recommended.

  12. Yeah, said that on the DT comments @ Dan Hodges.

    If there were only 2 shareholders, thee and me, if you gave away £10 million of my money vountarily without asking me, I’d make sure it came out of the directors’ pockets and not mine.

  13. Tim,

    I would imagnine anyone attempting to sue the management would be given the bum’s rush by any right thinking court at the first opportunity.

    Are the management saying that they will pay more corporation tax than they have to, or merely that they will pay the tax they would be liable to pay at the rate at which they would be liable to pay it if they did not engage in tax avoidance? I strongly suspect it is the latter course that the management is suggesting. Any shareholder who wished to challenge their actions by alleging breach of a fiduciary duty to maximise returns would have to make the case that the duty of directors to maximise returns for shareholders supercedes their duty to ensure that the company pays a lawful amount of tax at a lawful rate. No sane corporate lawyer – and they are usually the sanest of the bunch – would wish to take on such a case, as it would have the potential to obliterate the whole tax-avoidance industry overnight, containing as it does the risk of some judge somewhere actually having to rule on whether a director’s foremost duties are to maximise returns for shareholders or to ensure that the company pays lawful tax at lawful rate.

    If the judge went the wrong way, and leaving matters to the judge is always something of a crapshoot, you could end up with a precedent that says the principal duty is to ensure payment of tax; and that would then lead to the possibility of Occupy suing every known tax avoider in sight.

    The appearance of litigation of the type you imagine is not a prospect upon which I would open a book at William Hill’s.

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