Starbucks suffers reputation slump over tax 'avoidance'

Oct 19, 2012

Consumer goodwill drains away over coffee chain's failure to pay tax as more politicians call for boycott

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STARBUCKS has suffered serious harm to its reputation over revelations that it pays no corporation tax in the UK, according to pollsters YouGov. The news comes as the coffee shop chain faces calls from MPs for a consumer boycott over its perfectly legal tax affairs.

Reuters reported this week that Starbucks had paid £8.6m in corporation tax since it first opened in the UK in 1998 – and none since 2009. Corporation tax is paid on profits, and Starbucks UK has not reported a profit for the past three years. Despite this, Starbucks officials have regularly described the UK business as "profitable".

YouGov's BrandIndex, a daily measure of brand perception, reveals that Starbucks, which makes much of its ethical corporate policies, has declined markedly in people's estimation, The Guardian reports.

Starbucks' 'buzz' score, which is a measure of the number of negative and positive comments consumers have heard about a brand, has fallen from +0.7 to -13.9 - its lowest in four years. Starbucks' reputation score also dipped: from +4.6 a week ago to -3.9 following the tax revelations.

A BrandIndex spokeswoman said: "To say this story has been a disaster for the Starbucks brand would be a bit of an understatement. It's still too early to say what the long-term impact of this is going to be, but in the current climate we've seen the public take a fairly dim view towards accusations of corporate greed."

Tax campaigner Richard Murphy said of YouGov's findings: "I think the case that tax avoiding can harm shareholder value has been made. It's time corporate bosses noted. The anti-tax avoiders campaign is not going away."

Starbucks UK managing director Kris Engskov made a brave attempt to justify his company's tax arrangements, writing a blog that said they had "paid over £160m in various taxes, including Pay As You Earn for our 8,500 UK employees, national insurance and business rates" over the past three years. The post was later altered to remove the reference to PAYE, which is a tax on employees.

There is no suggestion that Starbucks has done anything illegal, a fact that has led to calls from MPs for an inquiry into the coffee chain's tax affairs and its relationship with the taxman. Others are supporting a consumer boycott.

Lib Dem MP Stephen Williams told the Financial Times that "consumer power" would force Starbucks "to come clean about their tax avoidance activities".

Williams added: "Consumer boycotts have a long tradition in the area of coffee and sugar going right back to 18th century Quaker-led campaigns in Bristol against the slave trade. Think before you drink and maybe we'll get this company to act responsibly." The chairman of the House of Commons public accounts committee, Margaret Hodge, has also called for a boycott.

Meanwhile tax campaigners UK Uncut are reportedly planning sit-ins at branches of Starbucks, a tactic it has previously used to draw attention to the tax affairs of Vodafone and Barclays.

And it's not just consumers that Starbucks has to worry about. CrossCountry is reportedly considering ending sales of Starbucks coffee on its train services, telling The Guardian: "If our customers were to tell us they were unhappy for us to sell them Starbucks coffee then we would, of course, review this arrangement."

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I used to go to Starbucks for my morning mocha until Wednesday, when I heard about the tax issue. So I went to Costa...and was served an undrinkable version of the same thing. Am going back to Starbucks.

I've certainly boycotted Starbucks, I used to spend maybe £30 give or take per week. I hope they miss (not) paying tax on my £1,500 per year.

One thing I don't get though, I read that the US head office charges a 6% (on sales) as an intellectual property royalty fee. If this is the case then over the past 10 years £180m (on £3bn sales) has been paid to Starbucks USA. But US corporation tax has been 5-10% higher than UK corporation tax so why would they do that? It must have cost them at least £10m in extra tax in the US, assuming (big assumption) they paid federal tax on that £180m royalty. Any ideas? Note to Starbucks: happy to take a % of that saving when you change your tax methods :)

they house the "intellectual property unit" of the group in a tax haven, thereby not paying US tax on the royalties

WTF! Trial by media again. This country is really fckud up, seriously bad.

I rarely go to Starbucks, but these politicians asking for a boycott are shirking their OWN responsibilities of CHANGING the tax laws! Starbucks are doing NOTHING illegal. If it's wrong, then change the law and dwal with it the proper way!