

Corporate taxation

Wake up and smell the coffee

Starbucks’s tax troubles are a sign of things to come for multinationals

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Readers' comments



It is hard to compare the effectiveness of taxation between these two countries (U.K. and U.S._ considering the big differences of what is offered by each nation to its citizens. In other words, how can a country that offers almost no health coverage to the population be considered a good example? (I'm not talking about U.K.)

Low rates of taxation are not synonym of effectiveness. And it gets even worse if we bring issues like the military budget, overall insecurity (considering developed countries numbers), subsidies, bailouts, etc.

Raising tax levels can indeed be nearly impossible in a democracy where the population of voters is already used to paying such rates - despite a few exceptions among wealth people like Bill Gates and Alan Greenspan... meaning that this is probably not an option for campaiging if you seek election.

So we have a population that lives within an insecure environment that at the same time can't afford to get sick. On the other hand we also have a society that can't give up on carrying guns for their own protection (which can be legit, maybe), in a process that also feeds the powerful industry of gun manufacturing.

Then why don't submit that industry to a similar treatment that was (and still is) being applied for industries like cigars and alcohol? By overtaxing the gun commercialization, the revenues could be redirected to increasing health care. Not to mention another problematic scenario from american society that is the prohibitively expensive cost of higher education.

The result could be that an important industry of the U.S. wouldn't be so stressed while at the same time the purchasing of weapons would be discouraged by these extra barriers. The population could also gain from enhancement of the welfare state in the most powerful country in the world (something that most american people simply seem to not know what is). And no politician would have to worry about the burden of being labeled as a 'raiser of taxes' (at the same time being able to be recognized as someone that actually targeted the growing problem of internal violence).


On a more philosophical note, this mindless pursuit of unending profit by companies looks a bit stupid to me. Nothing is going to perpetuate to eternity, so why not find a purpose that at least serves our lifetime. Such incredible waste of amazing minds for a few more dollars in a bank account.


Though the companies are not doing anything illegal but they are certainly not being ethical.
However, these companies are avoiding tax to increase overall profit. Why not government invest in these companies and be a shareholder of that profit? Its kind of win-win situation except for the fears of nationalization or govt taking control of the company by becoming a major shareholder.

free wheelie

I think that fiscal competition is not the same "beggar-thy-neighbor" game as devaluing your currency (or letting it fall) to spur exports. Some countries, like Ireland, have gained from foreign firms opening business there in terms of added jobs and all related benefits (also for State coffers) by offering both A cheap tax regime and a flexible jobs market.
It's up to governments, in spite of near-empty coffers, to provide a business-friendly environment. In lean times the general public may be enraged at the extensive use of all available loopholes by both rich individuals and large multinationals, but government had better not to pander to those feelings. Britain is reputedly business-friendly, so the Tory government is highly unlikely to crack down on these tax arbitrageurs, notably when they create real jobs.
Government should instead go back to the drawing board and devise a more streamlined tax code. They should watch closely the current debate in America, which may end in fudge but has identified the key issue of having a lower tax rate by increasing the tax base and this is the best regime for corporations.


Agree with shaun39 on VAT already being a tax, so Starbucks has been paying lots in taxes, not to mention creating employment. Disagree though with eliminating corporate tax.

The other problem no one has mentioned is not just British. When Starbucks decides to pay HM Treasury more tax, it implies it will pay less tax in other jurisdictions.

Just how much it squeezes smaller countries, where there is less transparency, remains to be seen, or indeed, may never be made known.


The Oxford University Study showed that whilst the UK had a competitive marginal rate of corporation tax, the taxable base was severely uncompetitive.

The government just abolished capital allowances for industrial buildings, for example, to compensate for the lower marginal rate.

Our rate of CT is just not competitive enough! The reason people tax-dodge like this is clear.

One (at least partial) solution would be an EU-wide tax regime. But if the Economist keeps posting stupid articles like it did on the front page last week, we will never get anywhere.


Britain owns Bermuda, the Cayman Islands, the BVI, etc. They could just wipe these local authorities out or, better yet, give them to the USA. I acknowledge that this only eliminates part of the problem, but it's a big part of the problem, and forcing people to move their money to Singapore instead is a somewhat dissuasive burden.

edmcw in reply to AsherNC

Good point. Most of the tax havens are actually subject in one way or another to the sovereignty of a supposedly respectable OECD member.
Copied from Wikipedia:
The Bahamas (UK)
Cyprus (EU)
Liechtenstein (EU)
Luxembourg (EU)
Monaco (EU)
Panama (OK, independent)
San Marino (EU)
Seychelles (OK, independent)
Campione d'Italia, an Italian exclave (Italy)
Jebel Ali Free Zone in the United Arab Emirates (OK, independent)
Labuan, off the coast of Brunei (Malaysia - OK not OECD)
Curaçao (Kingdom of the Netherlands)
Bermuda (United Kingdom)
British Virgin Islands (United Kingdom)
Cayman Islands (United Kingdom)
The Channel Islands of Jersey and Guernsey (United Kingdom)
The Isle of Man (United Kingdom)
Turks and Caicos Islands (United Kingdom)
Alaska (United States)
Delaware (United States)
Florida (United States)
Nevada (United States)
Texas (United States)
South Dakota (United States)
United States Virgin Islands (United States)
Wyoming (United States)
+Switzerland (which with much tougher diplomacy from the EU could be brought into line).
Compared to the mind-numbing diplomatic difficulty of reaching multilateral commitments on many issues, tax havens would seem to be a quick win. A straight bilateral EU/US deal or even unilateral action by either to restrict the activity of tax havens would get rid of most of the problem in a single stroke. Never has the time for doing so been higher.


Unfortunately, an individual tax-payer is not allowed to be a non-resident Bermuda citizen to pay taxes in Bermuda.


This is no joke, and I have no links to Mcdonalds what-so-ever , but these days they do make a fantastic coffee at a fraction of the cost that Starbucks is asking you to pay. Mcdonalds has really sharpened up their act in all sorts of ways, having suffered adverse publicity a few years ago. I would recommend them as a protest competitor to Starbucks. Google and Amazon are another matter entirely.


In Switzerland we are no strangers to the extreme wealthy and smart corporations to pay close to zero taxes. Ingvar Kamprad, Michael Schumacher and the tycoons and hedge fund managers if Zug are out of the regular tax codes. But they are not out of the law. They apply the law. They are not to blame. To blame are the voters who allow politicians and law makers to create two tier legal systems for the lucky view corporations, trusts and very wealthy to stand outside the social contract. No, doubt to their very own persona gain. Shame on Swiss and British voters.

surfson in reply to ChemieLK

Spoken like a well informed engineer @ChemieLK: There is no way a working family can keep abreast of backroom political malfeasance. I do not blame the voting public but the courts that are supposed to apply EQUITY but who seem to have lost their dictionary and their sense of duty to protect the un-aware.

These laws can be invalidated and the damages remedied but the judges have lost their balls and replaced them with Christmas ornaments whilst the rest of us can eat cake.

Merry Christmas your Honor.


Corporate taxation is rapidly becoming a joke. Global supply chains and the rise of the internet-based commerce and services make tax avoidance increasingly easy for multinationals, with smaller competitors consequently bearing an unfairly higher tax burden.

Why not transfer the tax take elsewhere? A carbon tax would be much easier to collect and should be politically achievable if introduced in tandem with corresponding corporate tax cuts.

Mike the Face

Ahhh yes, the great cranial challenge at running a business. Such complexities, so many conundrums, and so many tax havens to choose from to "invest" all that meagre hard earned profit.
Back at the end of the previous millanium, when Senator O'Bama modestly tried to gather the interest of Congress to maybe regulate the booming growth in quasi criminal off shore tax havens, he got nowhere, primarily because the enormous strock market returns from unregulated American countries moving off shore continued to climb. So Senators and Congressmen looked the other way, nudge nudge, wink wink. Later, when he became President, at a meeting of the G20 in Toronto he tried to gather a few modest international regulations and linguistic definitions that might slow the growth of off shore tax havens. No such luck..
Today, there are almost as many off shore tax haves to pick from as there are Star Buck franchises where free, family friendly western business's can safely invest all that surplus profit and mingle with all those cash only drug barons, war lords, dictators, oligarchs, arms merchants and international criminal gangs who are experts at moving surplus cash around. Why not learn from the best. Obviously the returns have been enormous as the organized criminal friends of capital soon came up with the grand derivative scheme right after the back dated stock option secretly went through the corporate world.
I mean, what else do these guys have in mind when they gather at those libertarian think tank holiday camps, over priced restaurants, luxurious private clubs and golf resorts in the tropics?
Guarantee Annual Income anyone?
You see, once you get that through you can then hack that evil socialism back one little nick at a time without having to constantly whittle away a nickel and dime at a time at over a couple of dozen welfare and pension programs.
Derivatives, stock options and tax schemes are nothing compared to the possible returns on imposing and then shrinkkng a GAI.


It seems counterintuitive to attack the businesses that skirt taxes legally. Sure, they might be conducting some less-than-exemplary evasion tactics, but they are operating within the law and trying to stay profitable. Perhaps the laws should be re-written to prevent these occurrences from happening. It seems Starbucks is trying to do the right thing (by paying more tax then called for) so rather than attack the corporation, let's look to the political leaders to restructure the laws.

Coffee Cup

I want Stabuck to do business in my country! You are welcome here: bring jobs, prosperity for all. Come here where we will embrace you warmly. (no irony intended)


Well, so much for the idea of activating our dormant subsidiary in the UK next year to coordinate EU business. Our CEO and his family are planning to relocate to Britain for at least part of the year, but there are surely better choices. Profound and important issues are wrapped up in the Starbucks matter, with much to be said on all sides. Still, however stimulating the discussion may be, I'm discovering that, when my personal butt is on the line, I'm going to advise against sailing into a political mess like this one.


And why exactly are the businesses themselves being targeted and not the politicians that ACTUALLY MAKE THE LAWS! Hello people, these companies are not doing anything illegal.

Alex Kilgour in reply to JakeRose

There is the Letter of the Law versus the Spirit of the Law.

By the Letter of the Law they aren't breaking any laws. By the Spirit of the Law they are violating the intent behind the law. By moving profits to low-tax nations by over-paying their own subsidiary for various services and/or materials they are intentionally moving their profits away from taxation.

jgunnc in reply to JakeRose

Sure - Tax reform in the US, and "tax transparency" and "exchange of information" between tax authorities in different countries, are policy reforms currently in process, which is why this article is timely.

The "arms-length" principle for transfer pricing (or more precisely, how to identify abuse of transfer pricing) is well accepted, but of course the devil is in the details. It might have been plausible (taken on its own) that Starbucks might have been making losses in the UK, except when it became clear that profits were accruing in places where there was clearly no value added. This is a hallmark of abuse of transfer pricing, but tax authorities in country X need the cooperation of the tax authorities in county Y in order to document the problem. Unfortunately, tax havens have little incentive to cooperate with other countries, which is why the OECD countries are putting more and more pressure on tax havens to cough up information.


We elect parliaments and governments to decide who should pay and how much tax should be paid. The grand-standing politicians whould be ashamed of themselves. When companies operate across borders, governments have to co-operate across borders. The EU provides the initial most effective means of cooperation, but Britain is inching towards the EU exit.

However, every democrat should boycott Starbucks. To the injury of employing aggressive, but legal, tax minimisation it has added the insult of deciding how much tax it will deign to pay.


"George Osborne, Britain’s chancellor of the exchequer, has responded to the furore over Starbucks, Google and Amazon by promising to use the country’s imminent chairmanship of the G8 club of rich countries to wage war on tax havens. Politicians elsewhere, also facing swelling deficits, may join him in that."

Good for them. Now let's see if anything comes out of it, or if they're too stuck sucking the corporate teat to actually pay attention to the needs of the government they work for and the people it serves.

pheebel_wimpe in reply to Melissia

The imminent "war" against tax havens is just a smoke screen for public consumption, meant to deflect attention from high tax governments' impotence on their lack of tax competitiveness. Most of the multinationals implicated in the article expanded in Europe with regional headquarters and operations in any of the Netherlands, Ireland, Luxembourg and Switzerland. Three of those four are EU members. This is not a case of employee-less shell companies; there is substance in these low-tax jurisdictions. Higher tax EU countries can whinge, but so far, they can't force other countries to increase their corporate tax rates, and they can't stop companies from engaging in legal tax arbitrage. Can American mutlinationals be faulted for picking the most tax efficient means of expanding in Europe?

KarlW in reply to pheebel_wimpe

They're still selling loads of coffee here. That means they're making lots of profit from dong business in this country while putting competitive pressures on other, supposedly fully contributing places.

The British aren't asking for anybody to pay more than they're making from being in Britain. This is about hiding the true profits you made by operating in a country by shifting it around international subsidiaries. We need some plain and simple tax rules that are concise.


Starbucks? Aren't they Fair Trade and all that stuff? Awesome! See, for Socialists, there's never enough other people's money - they'll always beg and threaten for more. Starbucks, Amazon, Google, these companies are run by decent people who are sympathetic to socialist whining, but they still have a business to run. After enough abuse by the left, will they join conservatives/republicans? Unlikely. But there is another way.

So yes socialists, please, tax those evil multinationals 200%, and beyond! Hike those taxes to the moon. I think libertarian message will be finding a lot more receptive ears if those trends continue.

Belisarius85 in reply to Malkavian

Starbucks wouldn't have gone "Fair Trade" if it didn't benefit their bottom line. Their shareholders wouldn't agree to it otherwise.

They should continue to pay as little tax as legally possible. It's the governments job to enforce tax compliance.

damianbrody in reply to Malkavian

I'm sure you are a decent guy Malkavian, yet because you are just a man without any real power, the government can bully and tax you at its will. On the other hand, big corporations are powerful, so the government think twice before messing with them.

I don't think is fair big corporation pay little taxes just because they can fight back the bully.

I think you're quite right belisarius, and i'm sure the same applies in this situation. I don't know what kind of profits sbux gets from britain but I would be surprised if this 10m was considered anything more than a minor marketing cost.


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