Starbucks first established a presence in the UK in the late 1990s and, over the last decade, has grown to the point where at last count it had over 750 outlets across Britain. Most people would probably call that a pretty good 10 years. But all is not well in the land of milk and mocha.
Over the last 15 years, Starbucks UK has recorded a profit only once. Since 2007, fiscal results shared with the tax man have been markedly different from the picture painted to analysts:
Between 2008 and 2011, Starbucks UK filed accounts showing consecutive annual losses of ￡26m, ￡52m, ￡34m and ￡33m. But over the same period, investors and analysts were told that the UK business was profitable, that sales continued to grow and that Starbucks is very pleased with the performance in the UK.
Clearly this apparent difference in fiscal realities is worthy of investigation, but until very recently it had been largely overlooked. But since 2010, when the incoming Conservative government in the UK adopted a policy of cutting public spending to reduce the budget deficit, increased levels of attention have been focused on what alternatives to cutting spending could be found. Unfortunately for Starbucks (and others, such as Google and Amazon), the one of the spotlights has fallen steadily on corporate tax avoidance.
Now, to be fair to Starbucks, they have done nothing illegal. What they have done however is to happily benefit from practices that allow them, quite legally, to make inter-company charges for things like use of intellectual property, and transfer pricing, both of which allow Starbucks to minimize its tax exposure.
This state of affairs may make all the sense in the world to analysts, but it doesn’t cut any ice with great swathes of the public in Britain who want to know, quite reasonably, why Starbucks is getting a free ride.
In October of 2012, this issue burst out of the confines of academic discussion and broke loudly in the mainstream. Pressure groups like UK Uncut ensured that the pressure was kept on and the number of column inches grew.
Starbucks, somewhat surprised by the sudden publicity surrounding a fiscal policy that had been operating quietly and satisfactorily for years, became alarmed. The alarm grey louder when their Chief Financial Officer, Troy Alstead, was one of several grilled in front of the cameras by the Public Accounts Committee. The result of this alarm was an announcement on December 6 when Kris Engskov, Managing Director of Starbucks UK announced that the company would unilaterally make a payment of ￡10m for each of the next two years “regardless of whether the company is profitable”.
Rather than brushing the issue hastily under a mat, this announcement put Starbucks back on the front page. Her Majesty’s Revenue and Customs (HMRC) responded that the public expects businesses to pay their share, and that corporation tax should not be considered voluntary. UK Uncut said that Starbucks was avoiding the issue and that the gesture was “too little, too latte”, and organized a series of protests at Starbucks stores at multiple locations around the UK.
In the midst of all this, with timing that could scarcely be worse, Starbucks launched a campaign on twitter encouraging members of the public to share stories of holiday cheer and goodwill using the hashtag #spreadthecheer.
Nobody of course can be surprised to hear that the campaign has backfired quite dramatically. “I will never buy coffee from tax dodging Starbucks again personally. RT and #spreadthecheer” said one. “Why not #spreadthecheer by paying your taxes in full Starbucks? You leeching, parasitic scum.” said another. And those are two of the nicer ones.
But worse was to come. As part of its festive season marketing campaign, Starbucks set up a Twitter wall at the Natural History Museum cafe in London, where adults and children alike could enjoy the delights of a coffee, a skate and spreading the cheer.
Whether a moderator was asleep at the switch or the content filtering software fell over at a critical moment is not clear, but what was clear was the opportunity to give Starbucks another highly visible kick in the shins.
From a pointed but relatively clean beginning “If firms like Starbucks paid proper taxes, museums wouldn’t have to prostitute themselves to advertisers” (the National History Museum is paid for with public money), tweets became progressively worse. They ventured through “Starbucks’ anti-labor behaviors mean my good friend has to work three 12-hour shifts two days after giving birth. #spreadthecheer.” and “#spreadthecheer Tax dodging MoFos” before finally arriving at rock bottom with “Hey #Starbucks Pay your f****** tax. #spreadthecheer.
While Starbucks UK HQ will presumably be a little short on holiday cheer this year, one company who will be thinking Christmas has come early is Costa Coffee, the biggest UK coffee retailer, whose parent group Whitbread plc have seen their share price rise over 100 points since early October.