Starbucks attends Public Accounts Committee hearing
This afternoon, I am representing Starbucks at a meeting called by the Public Accounts Committee in the UK to examine the tax practices of a number of multinational companies. For context, I have been a partner (employee) at Starbucks for more than 20 years, and have served in my current role as the company's chief financial officer / chief administrative officer since 2008, so it was important for me to attend the meeting and share as much information as possible on behalf of Starbucks.
While the subject of tax law can be extraordinarily complex, I assure you that Starbucks Coffee Company respects and complies with tax laws and accounting rules in each of the 61 countries where we do business, including the UK – a market that we remain committed to for the long term. It’s also important to emphasize that Starbucks overall corporate tax rate for 2012 is approximately 33%, nearly double the median effective tax rate of 18.5% for other multinational U.S. companies.
Going before the Public Accounts Committee and taking their questions is allowing me to address specific points about tax payment and reporting. It also gives me the chance to share more about Starbucks contributions and commitment to the UK, as well as how we’re positioning ourselves for the future. And that’s what I’d like to provide here:
* Starbucks entered the UK market in 1998 with the acquisition of The Seattle Coffee Company, which then operated 60 stores in the UK. We now operate more than 700 stores and employ nearly 8,500 partners (employees) here. In December 2011 we announced that Starbucks would be creating 5,000 new jobs over the next five years, as we directly and in conjunction with our licensees open 300 new stores up and down the country.
* Starbucks is proud to be making a net positive contribution to the UK. Our presence in the UK has created benefit to the Exchequer. For example, we directly contribute more than £25m - £30m per year to the Exchequer in various taxes, including Employers National Insurance contributions and business rates taxes. This does not include any VAT payments.
* However, Starbucks economic impact in the UK spans far beyond our stores and partners. We have spent hundreds of millions of pounds with local suppliers on milk, cakes and sandwiches, and on store design and renovations. When you take into account the indirect employment created by Starbucks investments in the UK, the company’s extended economic impact to the UK economy exceeds £80 m annually.
* In addition to the thousands of new jobs which will be created through our operations over the next few years, we recently committed to creating 1,000 apprenticeships to give young people the opportunity for great careers in retail. This program complements our partnership with UK Youth, a nationwide youth charity, and our ongoing partnership with the Prince’s Trust to provide work experience and life skills to young people Not in Education Employment or Training (NEET).
* It is true that over the last 14 years we have paid £8.6m of corporate income tax in the UK. Corporate income tax is a tax on profits and the simple fact is that it has been difficult for us to make a profit in the UK under any measure. Under the rules we are required to follow when reporting our US results, which exclude royalty payments and interest expense, our most profitable year (2007) in the UK produced an operating margin of only 6%. It has been stated several times in the press recently that our UK operating margin using our US reporting method has reached 15%. This is categorically incorrect and we have never stated publicly or in our internal records that our UK profit margin has been near 15%.
*Our lack of profitability in the UK is a source of concern to us as a business. Many of the struggles we have experienced in the UK are of a self-induced nature. One significant example is the cost of leasing property in the UK. In the US, property costs amount to around 10% of sales revenue, whereas in the UK they represent around 25% of sales revenues. These are decisions we made, and own, and are working hard to correct. Our business in the UK is improving and we are restructuring our property portfolio significantly to counteract this.
*Finally, I wanted to clarify our European structure. We have country operations in the UK, our European Regional headquarters and blending and roasting operation in Amsterdam, and our global coffee buying unit in Switzerland where 75% of the world’s coffee is traded. The primary reason we selected Amsterdam for our EMEA headquarters is because it provides a central location and a skilled multi-language labour force. It manages operations in 33 countries. Also in Amsterdam is our roasting facility which roasts all coffee beans used in Europe before distributing them to the various markets.
Starbucks pays a royalty payment of 6% to our EMEA headquarters in Amsterdam. Charging a royalty payment for the right to use a global brand and for services provided is standard business practice for multinationals. When marketing fees are included, our royalty rate compares quite favourably to other multi-national licensors. As noted above, the royalty also reflects the services provided to Starbucks UK and includes product development, marketing, brand development and trademark enforcement and protection as well as IT and accounting functions in the regional and global headquarters. Were these services not provided to Starbucks UK internally we would have to fund them locally, at much greater cost which would further impair Starbucks UK’s ability to be profitable.
Despite what has been implied, Starbucks European structure has no impact on our taxable profit in the UK. In fact, the license fees we deduct for UK tax purposes are frequently negotiated and renegotiated between Starbucks and local country tax authorities.
If you are interested in obtaining additional information on what we submitted to the Public Accounts Committee, I would encourage you to review the detailed written submission we sent to the Committee last week. We will be sharing a link to that submission once the PAC has posted it publicly. We will continue to work with the Committee, the HMRC and others as requested.
The information I am sharing today reflects the transparent and open stance Starbucks has historically taken about the entirety of our business, including our response to recent questions about our tax payments and reporting. Our chairman, president and ceo Howard Schultz posted a message in October on Starbucks tax and profitability in the UK, which I would invite you to read here for additional context.
In closing, on behalf of Starbucks, I want to emphasize that we’ve always believed that to be successful we must strive to strike a balance between profitability and social responsibility, and we will continue to endeavor to meet our own high ethical standards for how we care for our people, source our coffee, serve communities and operate in the UK and all countries where we do business.
Troy Alstead
chief financial officer/chief administrative officer
Change Region
"Starbucks believes the power of young people will change the world for the better." This a quote from your own website, just one of many aimed at giving the false impression that Starbucks has morals and ethics. If you want to give young people the power to change the world simply pay your fair share of tax, this can then go to fund the education system.
Starbucks appear morally bankrupt, we all understand and are not immune to making cash to enrich ones own pockets, it's called greed and a little maybe is necessary to keep business fluid and to make shareholders loyalty, but come on Starbucks you appear to be taking money from UK economy? Your directors should think about their morals and the example they set.
Please remember to behave like decent members of a community, without customers you have no business
As a finance guy myself, I know how simple it is for companies to reduce their taxable profits simply by adjusting their inter-company transfer pricing. HMRC are hopelessly out-gunned in trying to police this activity, so it all relies on the big companies using honesty, integrity, and reasonableness. Starbucks are clearly not playing by these rules. While it may not be 'evasion', it is still morally bankrupt.Shame on you, Starbucks.
Shame on you
Mr Alstead, reading through your poor excuse for not pay UK taxes, you very quickly pick up the lie after lie that naturally flows through your sentences. Holding a title like yours in a company like Starbucks for 20 years is nothing to boast about, Let's be honest (just for one second) the only thing you have really achieved has been that you've managed to cook the books for so long. Lets hope that this government takes you to the cleaners and you're made to pay what you really owe.
I am puzzled. Since Starbucks has made next to no money in the UK for over 10 years, why keep trading here? I won't be buying a Starbucks coffee anytime soon. I'll go to an ethical company.
Starbucks are using smoke and mirrors in their defence. They say they pay "tax" but this is generally VAT and NI. VAT is paid by the customer and Starbucks hands this over to HMCR. NI is taken from the employees wages and these people can't afford clever VAT accountants to avoid. Starbucks you are not ethical and to be honest if you don't change the general public will walk. Remember Ratners, CEO treatment of his customers.
It sickens me when you thrown in numbers like you "operate in 61 countries" and that you have "over 700 stores" in the UK. Now try counting your customer base backwards Mr Alstead... You can start with my lost custom! Finally, please don't use phrases that you clearly don't know the meaning of like "our own high ethical standards". There is nothing ethical about Starbucks, the comments on this site and in the Apple App Store says it all!
Sir
We understand perfectly that you are evading tax. It is not illegal, but it is deeply immoral.As a company you now need to think quickly. You can take the initiative and immediately announce you will pay proper tax in the UK and your business will thrive. Alternatively you will lose customers to Costa who invest in the UK and its customers. The window of opportunity is slipping. If you make the wrong decision now you will have no tax liability tomorrow - you will have no customers left.
Sir, you are obviously a tax expert pointing out that tax evasion is both legal and immoral.
Would you like to join the Justice for Taxes Network?
Yours faithfully
Murphy Richards
Your customers have paid tax on the money they spend in your stores, but you avoid paying tax on the profits you make from those customers. Customers take your business elsewhere, to companies that make a financial contribution to this country and boycott Starbucks.
I thought your appearance before the committee beautifully demonstrated the dishonest and hypocritical relationship Starbucks has with the UK. Your presence here relies on public infrastructure like roads, schools, health care, public transport and as anyone who took part in the TUC march in October saw - - police protection.
To take advantage of all the services the UK has to offer and to pay a derisory amount of tax amounts to theft on a grand scale. You ought to be ashamed of yourselves.
This mealy mouthed attempt at an explanation has to be one of the worst PR operations I've ever seen. First you boast to US shareh0lders about the profitability of your UK operations, now you seem to be claiming that your shops in the UK are a lossmaker. Who thought that this strategy would be a winner? I'd suggest that their advice isn't worth what you're paying for it. We know that you are complying with the letter of the law, but it's clear to see you aren't complying with the spirit of it.
It is insulting to listen to the justifications your firm has making regarding the tax avoidance issue.
We, as taxpayers and individuals are having to face pay freezes, increased pension contributions, cuts to public services on a scale never seen.
Companies evading or avoiding tax directly impacts on honest, hardworking people. If the taxes were paid fairly by large companies, the UK would not have to face such harsh austerity measures.
I will not set foot in any Starbuck stores.
PAY YOUR TAXES !!
You're not being clever with you use of smoke and mirrors. You previously put out a statement claiming to pay £180m in taxes until it was pointed out that most of this was VAT paid by your customers. Now you say that you pay £25-30m to 'the Exchequer'. This includes business rates which are paid to local councils and NI which is not a tax. So. How much tax do you pay to central government. It sounds like it would be less than £5m.
We're not idiots.
Please don't siphon money out of this country and then ask us to thank you for it. Pay what you owe & stop trying to make even more money by cynically carpet bombing every high st around the country with your stores, reducing this country's individuality & ability to provide public services. All your taxes paid appear to be in the millions but have you not been making billions (after you recognise that a royalty you pay yourselves is no royalty at all just simple laundering on a global scale)?
One thing I noted from your 'lecture' at the hearing: you saying something along the lines of "it's very difficult to explain tax to (ordinary, I think was your word?) people and we should certainly try and do this better".
You might want to start with your CEO, who thinks that your customers paying VAT and your employees paying their PAYE is the same as you paying your taxes!!!!!
Stop treating us like idiots, when will you learn?
After the tear jerking performance yesterday I feel ashamed that my tax-free gift giving at work doesn't include poor little Starbucks. Therefore, to redeem myself I am thinking of a charity run or perhaps a sponsored coffee drink would be more apt for them. I also had no idea that the source of where you pay tax is reliant on the technology. Given I work using my brain and my brain works best happy, and I am happiest when on holiday I will be asking my employer to remove my UK tax deduductions.
"Despite what has been implied, Starbucks European structure has no impact on our taxable profit in the UK." I beg to differ. The Swiss arm is a centralised coffee trading operation. It exists to pool the buying power of all the European arms and therefore provide the coffee at the lowest possible cost to those arms, thereby improving the profitability of those arms. Except it then charges a 20% mark-up. Which does the opposite. And reduces your tax bill in local offices. Considerably.
So Troy, how do you reckon it's going so far? Not well, from where I'm sitting.
FREE MILK!
I don't think it's going well at all because Troy has decided not to mention the fact that at least one of his stores which I passed today was EMPTY! Normally a packed store at lunchtimes today it was looking like a closed down shop. In fact it has been so quiet that the poor workers (who are not to blame) that are having to support the tax avoidance practices of Starbucks were giving away bags of FREE MILK to avoid them being thrown away.
Just another company who doesn't care about it's customers. Pay your
taxes and stop making excusses.
Just another company who doesn't care about it's customers. Pay your
taxes and stop making excusses.
I feel so sorry for your investors as all your UK shops are making no profit. That's awful. And still you're going to take their hard won money and plough it into this bottomless pit? The shareholders must be beside themselves with worry. I must say that they seem remarkably calm given the situation. However I feel that they deserve much better and I won't be drinking any more of your coffee until your shops start showing some profit. After all a chap deserves some return on his money doesn't he?
Q. What's the difference between a profitable corporation-tax paying business and an unprofitable one?
A. Accountants.
With a multi-national corporation it is trivial to have a subsidiary in one country overcharge a subsidiary in another other. The result is that profit disappears from the overcharged, and reappears at the over-charger.
Magic.
Also it's sheer scumbaggery and we see right through it.
Tax-dodging criminals. Boycotted.
Would you please pay your taxes? In a morally pleasing way, that is.
PAY YOUR TAXES!!!
It is simple, really. I only buy coffee from places that pay their taxes. This is more than paying VAT and NI
Cool the CEO's Starbucks pay VAT chat has been dropped. Hopefully the the indirect demand for supplies and job creation will disappear as well given every Starbucks that closed would be replaced by a job creating, supply buying rival that actually pays taxes. Oh and the original research that flagged this up found Starbucks charges a higher royalty (to reduce taxable profits here) than comparable companies do.We need a new sales tax aimed at PLCs. Lets call it the Starbucks tax.
I'm amazed that Starbucks thinks that it's more worthwhile keeping up this charade, and embarrassing itself (or maybe just Troy) in public to boot, all while it's brand value burns in front of its eyes.
I'm taking the hundreds of pounds I previously spent in Starbucks on a yearly basis elsewhere. Ethics is about more than the price you pay for coffee beans. Swallow that Howard S.
The silence is deafening! Troy, there are 28 comments on your blog posting and everyone of them is critical of what you write. Are you not going to defend your position?
Much as I agree with the comments made above I'm afraid that if the history of these blogs are anything to go by Starbucks senior management will just ignore them. There policy appears to be to sit out any criticism and business will get back to normal soon enough.
Unfortunately for your company Troy the British people unlike middle America do not forget moral injustices. We may not openly complain but we do do walking away. Just ask Gerald Ratner!
Your whole argument is flawed. Yes you pay some taxes, but if you were not here would there be another retailer/coffee shop employing those same people?
AND THEY WOULD PAY CORPORATION TAX
I am voting with my wallet and I will encourage all my friends to boycott your establishment and all the other multinationals who take millions from our economy pay a measly amount of tax. At least have the decency to be honest about your business.
Did you parents name you after the gift horse that turned out to be a duplicitious attack? How dare you claim to be ethical when your amoral conduct is effecting the vulnerable of this country. You and your ilk are the reason this wealthy country can no longer afford to maintain it's social structures. You are a parasite on this land.
Until you pay your taxes (including all the backdated stuff), I will not darken my milk with your coffee...
Your abysmal performance before the Public Accounts Committee convinces me never again to give my custom to your irresponsible company. Pay your taxes and stop insulting our intelligence by your absurd claim not to be making any money from your UK outlets.
My beef, and I suspect that of many, is quite simple: every penny which Starbucks manages to avoid paying in UK taxes by means of no doubt legal clever accounting is a penny which I and my fellow-UK PAYE taxpayers have to make up. Hence, you are taking money our of our pockets. I shan't be buying my coffee from your stores any more until you pay a proper amount of UK Corporation tax.
Come on people! Look at what they're trying to tell us! For 14 years, they've been in the UK, opening new UK stores, employing UK people, and sourcing UK milk, cakes and sandwiches. And in those 14 years, only three of them have been profitable for them. So why are they doing it? Starbucks won't admit it - it's beneath them - but I sure will; it's love.
That's right - love! It's not a dirty word. Oh sure, if you stick it with another word that IS dirty, or suggestive, then yes, love can become a dirty word I guess. But Starbucks aren't doing that. They just want to see us happy. THAT'S why they continue to run a UK business that to all intents and purposes is a financial stinker. It's kind of like charity, just a charity that charges its beneficiaries. So leave off! Everyone of their cups is a milky hug - and hugs are WAY better than taxes!
Troy
I have written a response to your ad hominem attack on me.
http://justicefortaxesnetwork.wordpress.com/2012/11/15/legally-immoral/
Have echo the other comments here - starbucks you are a disgrace. There is no way any business would make a real loss for 15 years and stay in business and certainly not promote the man who oversee it!! The truth is out - you are fleecing the UK of solely needed taxes. As others have said claiming VAT & NI as part of the taxes you pay is desparate at best. All your customers pay their taxes so why don't you!! Until you play fair I will be boycotting you and I shall be urging others to do so
If our politicians (who MAKE the laws) and HMRC are so incompetent as to let Starbucks get away with this then I really can't blame them.
hilarious! i think this one's backfiring spectacularly for you starbucks! i went past your victoria station branch a few times this week and there was tumbleweed blowing through the store...dreadful, insulting behaviour and trying to go on the front foot by turning this by saying it's ok not to pay corp tax because your emplyees are paying PAYE and you're paying NI is frankly disingenuous. shame on you
There are far too many reactionary comments on here that are failing to see the bigger picture.
You have a problem with lax UK/Tax laws? Complain to your MP, not your barista.
By boycotting Starbucks you are simply putting 8,500 jobs at risk. Those taxes you keep complaining about having to pay will have to go towards paying their unemployment benefit. You'll feel a winner then, won't you?
I'm sorry Flat-White, I disagree with your comments. Yes our tax system isn't perfect but every other coffee shop can manage to pay their fair share of taxes, so why can't this one? It's the greed of companies like Starbucks that has ruined our high street so quite frankly 8,500 jobs is a small price to pay if we can go back to a Starbuckless high street. This one is all down to poor management and will make good reading in a few years time on how not to run a business by annoying its customers!
So the 8,500 can lose their jobs as long as you get your moral victory, right?
Maybe there are more out there and the Daily Mail just haven't found them yet. Or maybe they're just not as financially astute?
If every person had their own accountant whom advised them of the LEGAL ways they could avoid paying tax I wonder just how many of the informed individuals on this page wouldn't take that option?
That's Right! If everyone paid their taxes, then we'd be in a better position to recruit more health workers, police, fireman, road builders.... the list goes on. When I travel to the US for a holiday, I don't have a choice whether or not i pay the sales tax and I'm sure UK companies are made to pay more tax than Starbucks has got away with here. There is no excuse to not paying to support the country you're operating in.
...Or alternatively, the government stops wasting money on illegal wars, pointless votes, and allowing MPs to cheat the system.
I see no benefit to the UK if Starbucks left the country. We would still lose any legitimate tax owing and the investment in people and infrastructure would be gone. And if you think that 700+ empty stores would be snapped up in the current economic climate, think again.
Its naive to expect anyone to pay more tax than they have to. Change the law, not your coffee.
Wrong in so many ways. Low paid employees get their wages topped up via tax credits, in most cases this payment exceeds the amount of tax oaid,
so we're actually subsidising Starbucks.
There is no unemployment benefit anymore,if you're lucky you'll end up at Teco's on Workfare. Try and keep up.
Hi Folks - go to www.ukuncut.org.uk & look at the Dec 8th action list for your nearest SB protest
Hi Folks - go to www.ukuncut.org.uk & look at the Dec 8th action list for your nearest SB protest
Hi Folks - go to www.ukuncut.org.uk & look at the Dec 8th action list for your nearest SB protest
So you pay the minimum legally permissible tax you can to maximise profits to reinvest to grow your business and/or pay to shareholders.
When you reinvest these monies are in turn taxed as are your shareholders' dividends.
By reinvesting you are contributing to economic growth within the markets you do so and creating more employment.
Or returning money to shareholders whom reinvest also.
Alternative pay more tax to Government who are more apt at redistributing....hmmm
I teach Reputation Management and this is turning into a great case study of what not to do. Anyone want to lay odds on how long it takes before this stance changes and Starbucks realise that paying fair tax is good for business? You can't publicly proclaim your moral standards and behave the way you have. True - the UK tax laws let you get away with it, and your stakeholders no doubt demand high dividends, but you know that this is wrong and you've been rumbled.
Vote with your feet -buy local
Its morally repugnant - I buy your coffee and you syphon the money between various holding companies and pay yourself royalties? Disgusting!
Treat your customers and the country in which you operating with a dency that is required!
GET YOUR COFFEE FROM AN INDEPENDANT RETAILER OR A COMPANY THAT PAYS ITS FAIR SHARE OF UK TAXES.
STARBUCKS IS A FRANCHISE, I URGE THE OWNERS OF THESE PREMISES TO CONTACT HEAD OFFICE BEFORE YOU SEE YOUR CUSTOMERS DISSAPEAR.
Smoke and mirrors in these figures.
Lets compare like with like. For year end 2011.
Costa Starbucks
Sales £377m £396m
Sales costs £101m £319m
Admin expenses £36m £107m
Taxable profit £50m -£32.9m
Starbucks charges a 6% in royalty fees considered high in the industry. Either Starbucks is very very badly run compared to its rivals or its cooking the books.
I am so tired of the lies big corporations tell. We are not stupid. We are not idiots. Do you seriously think that we cannot see or understand what you are doing? Do you not have any understanding of the overwhelming dissapointment that is rising against you for your selfish acts? You are taking money away from every hard working person in the UK - life is hard enough without your greed adding further pressure on the UK economy. Pay us what you owe us.
Just pay the proper amount of tax like other honest companies do! Fucks me right off and to be honest you are not getting another penny out of me again. Think of the people you are robbing whilst your greed steers the business. I'm sticking with Costa coffee and as the MD of a well known social media agency I'll do my best to put as many people off going to your shops as possible.
This is so simple. Pay your taxes like the rest of us and I will buy your coffee. Otherwise, there are plenty of other coffee-shops that are pleased to take my money. Please see sense and pay what you owe.
Why not change the company name to Starbucks number one tax doger.
at least dick turpin used to wear a mask
I've used Starbucks on my travels up and down the UK for quite a few years now & I liked to think your company had recognised it has obligations to the communities you operated in.
Sadly, I see your ethical policy is just a marketing ploy and you are no different from any other big business - profit first and last.
So, as you dont care about my community, I wont be giving you any more of my business from now on. Still, as you "make a loss" in the UK it wont be a problem for you.
Pleased to see from todays BBC report that you are responding to public opinion and are working with HMRC and the Treasury to do more on your tax liability. If you are infeed genuinely sincere about paying your fair share of taxes then I am sure the public will respond accordingly. However be very, very careful because if this is simply a PR stunt to stem public anger the British public will never forgive you.
Why don't Starbucks pay Tax in the UK? Not sure if the relocation of a tiny 4.7% of revenue away from "for intellectual property" costs in NL is going to make much difference. The last time I looked at my tax liabilities, a significantly higher proportion than that was taxable. Transparency and accountability please.