Don’t be fooled — Starbucks’ tax pledge loses a battle to win the war

[First published in The Morning Star, 08/12/2012]

Britain’s business editors were gobsmacked this week as coffee chain Starbucks, the very avatar of global capital, pledged to voluntarily increase its corporation tax payments.

“Starbucks will not claim tax deductions for royalties and standard intercompany charges,” managing director Kris Engskov said in an open letter.

“Furthermore, Starbucks will commit to paying a significant amount of tax during 2013 and 2014 regardless of whether the company is profitable during these years.”

But if Engskov was expecting an avalanche of excitable soundbites about “responsible capitalism”, he was sorely mistaken. Even Parliament’s most reliable neoliberals have held their tongues: possibly because the company also chose this week to slash paid lunch breaks and sick leave for its barely minimum-wage, non-unionised baristas, but more likely thanks to chief financial officer Troy Alstead’s contemptuous performance before MPs on the public accounts committee.

If Alstead is to be believed, a company which controls nearly a third of the UK market after 14 years’ trading, more than 750 stores and more than £3bn in sales has somehow only managed to turn a profit just three times. No matter how many mugs they sold, Starbucks UK’s take was snatched away as royalty fees from Starbucks’ European headquarters, fees for Starbucks’ facilities in Amsterdam and Switzerland, interest on loans from other Starbucks subsidiaries and the like. [Read Reuters reporter Tom Bergin’s remarkable expose here.]

As a result its total corporation tax bill to date has been just £8.6m, barely more than half of what comparably-sized rival Costa paid last year alone.

Yet Starbucks’ apparent U-turn is more of a corkscrew bend: Engskov still insisted in this week’s statement that they still “found making a profit in the UK to be difficult”.

Even chairman Howard Schultz weighed in. Schultz, who in 2008 decided UK & European head Cliff Burrows was a sharp enough kid to run their stateside operation, was adamant the company’s accounting “adhere[d] to both the letter and the spirit of the law”.

Yet as one bit of doublethink begets another, the company’s own FAQ contradicts Schultz: “We have always paid our taxes to the letter of the law, but we know that to retain public trust we need to do more.“

It’s hard to see what Starbucks thinks it can do, since it can’t pay the Revenue money it doesn’t have (and those intercompany loans don’t seem to have helped). And as Schultz and his ilk have so often reminded us, they have a responsibility to maximise shareholder returns.

Even dispensing with the word games, Starbucks’ gambit is utterly transparent. Deferring its deductions until the complaints die down while keeping its tax havens in play is about as responsible as a drug cartel donating to a rehab clinic, and ultimately the same logic is at work. Regardless of their own mythos and media centres, corporations exist purely to acquire profit. They have no values — only interests.

One such interest would be deflating UK Uncut’s planned occupations at Starbucks’ coffeeshops across the country today: you want us to pay more tax, we say we’ll pay more tax, what’s the problem?

But UK Uncut’s indefatigable organisers have come to understand the game as well as anyone. Public guilt-trips like Saturday’s protests are ultimately about piling pressure on Westminster and Whitehall where votes will really be won and lost, not Seattle shareholders’ meetings. The state must be in a position to make corporations pay.

Yet despite tax-dodging’s ascendance to a regular front-page headline, the department charged with stopping it remains on the budgetary equivalent of an iron lung. Year-on-year budget cuts saw its workforce slashed by nearly a third between 2005 and 2010, with another 10,000 staff slated for layoffs under confirmed budget cuts of 16.5 percent.

That would leave 34,000 staff by 2015 to handle some 2.7 million companies registered here (let alone income tax). At that rate we may as well take Starbucks’ lead and just put out a tip jar.

In fact the only figure more risible than Starbucks’ pledge is George Osborne’s commitment last month to the OECD’s project to stamp out international profit shifting like Starbucks’. So what did he pledge? £120,000; the cost of a semi-detached home in his own Cheshire constituency.

If anything Starbucks’ sop this week could be seen as losing a battle to win the war. For us, the fight has barely begun.

2 Comments on “Don’t be fooled — Starbucks’ tax pledge loses a battle to win the war”

  1. […] Don’t be fooled — Starbucks’ tax pledge loses a battle to win the war → […]

  2. Pawel says:

    It’s more complicated than that. Being subject to European laws on freedom of movement, Britain can do nothing to determine corporate residency. Companies choose to reside where the taxes are lowest – to do otherwise would be absurd.

    Double taxation treaties entered into by the UK government with other countries prevent individuals and companies from being taxed twice on one profit. So these companies, in a way permitted by law, shift their profits to where tax liabilities are lowest.

    What’s the way to prevent this? One would be to introduce an EU-wide general anti-abuse rule. Indeed, one has already been proposed and it does take international treaties into account. But any such rule is unlikely to prevent what Starbucks is doing – namely paying tax in one country instead of another. No rule that shifts profits to where taxes are highest would be met with political approval, and the proposed rule is likely to only apply to companies that seek to avoid tax altogether.

    Returning to the PAC, it was clearly the MPs who delivered the more contemptuous performance. They risked companies’ reputations by accusing them of practices that the government has no real intention or capacity to change.

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