Starbucks tax: A system built for playing

The Starbucks tax fiasco tells us much more about Britain than greedy corporations, reckons Paul Demarty

The farcical pantomime battle between Starbucks and the taxman gets more ridiculous by the day.

Like any international company with half an ounce of sense, Starbucks funnels the profits it makes to places where it will be taxed as minimally as possible. The American giant, which expanded from Seattle to fill the entire world with disgusting, overpriced coffee, has concocted a typically ingenious wheeze to maximise tax efficiency. It is a ruse that has paid off handsomely, with only £8.6 million going to the exchequer in its 14 years of operations in this country.

It has managed to do this by artificially wiping out its profits. It is technically true: Starbucks’s UK arm simply has not made any substantial profit on billions of pounds of sales in that period. Of course, unless the tinny taste of a caramel macchiato is down to the baristas stirring in molten gold, this flies in the face of reality. The UK operation, rather, pays an enormous fee to a Swiss Starbucks subsidiary for the coffee it serves - the kicker being that the Swiss subsidiary does not actually handle the coffee. Genius! Add in a substantial ‘royalty payment’ to yet another Starbucks tentacle - this time in Holland - and taxable profits sink to close to zero.

Starbucks has become the focus of a more general scandal concerning the UK tax arrangements of multinationals. Google and Amazon have likewise found ways to shuffle profits around their various local operations, to the expense of Her Majesty’s Revenue and Customs. Neither have come under the same level of outrage (let’s be honest - there are fewer Google premises for UK Uncut to invade and start jumping up and down inside); and neither are likely to offer the self-parodic peace offering that has come from Starbucks, who have offered to write two £10 million cheques to HMRC over the next two years.

Consumer power

There have been a number of reactions to this, ranging from the credulous to the cynical (more of the latter, thankfully). To start with the credulous: it is said that the about-turn by Starbucks demonstrates the power of consumers to force a change of course from major firms.

Indeed, it is not the possibility (precisely zero) of legal pursuit from HMRC that forced Starbucks to make their £20 million peace offering, but rather the fact that the whole affair became a complete PR fiasco. Ethical consumerists, who are forced to seize on anything of this kind as a victory to distract attention from the broader trends, will no doubt celebrate the success.

The broader picture is as unattractive it has always been. Starbucks is but one of a whole host of companies whose bad behaviour has been exposed. It operates in a relatively efficient market, with input prices fixed by global coffee production and several direct competitors on the UK high street offering similar services (and better coffee). It is simple enough for a yuppie of a conscientious type to go to Costa instead, and so there has been a direct hit in the last week or two to all that profit Starbucks isn’t making.

Other tax-dodging companies like Google and Amazon, however, have a far more monopolistic profile, and have significantly shaped the broader business sectors in which they operate. It is a much bigger ask - financially and practically - to use these companies’ competitors, which are either far more technically limited (in the case of Google) or more expensive (Amazon).

Add in the comprehensive failure to obtain redress for the £6 billion back-tax bill Vodafone had written off over a friendly meeting with HMRC’s then boss, Dave Hartnett, and the consumer-as-tax-crusader looks a far less likely saviour for the exchequer. For all the sound and fury over that, Vodafone certainly has not been spooked into rectifying its behaviour, and - like Starbucks - paid precisely zero corporation tax last year.

Sooner or later, Starbucks will return to its old ways. This is not because - as idiotic MPs frivolously suggest - it is run according to some morally bankrupt corporate governance scheme. It is because Starbucks does not exist to sell bad coffee, but to maximise returns for its shareholders; and tax efficiency is a neat way to do just that. ‘Unethical’ behaviour is a competitive advantage in the marketplace, which more than offsets the small bloc of self-righteous customers which one thereby loses.

Ethical consumerism was one of the outcomes of the anti-capitalist (more realistically, anti-corporate) movement of the 1990s - and it was actively promoted to serve exactly this purpose. As soon as capitalism exposed its ruthlessness and corruption - whether through environmental despoliation (Coca-Cola), sweatshop labour (Nike) or rampant fraud (Enron), the bourgeoisie would start yammering about corporate social responsibility, or social entrepreneurship, or some other such guff. It gives a certain layer of the well-meaning a way to imagine that they can ‘make a difference’.

Quelle surprise

Fortunately, not everyone is quite as gullible. Starbucks’s behaviour in this instance is obviously cynical, but hardly surprising.

Ben Franklin, paraphrasing Daniel Defoe, famously said that nothing is certain in life but death and taxes. The ruling class may not have yet found a way, as in Richard Morgan’s science fiction novel Altered carbon, to avoid the former. A good portion of taxation has long been essentially voluntary for serious capitalist concerns.

Far from dispelling disgruntlement at this fact, Starbucks’s £20 million gift to the exchequer rather underlines it. UK Uncut, to its credit, is not fooled: “Offering to pay some tax if and when it suits you doesn’t stop you being a tax dodger,” reads a press release.1 Even more beautifully, there is absolutely nothing to stop the company taking taxable money out of another country to pay the £20 million, thereby reducing its global tax bill. When life gives you lemons ...

Just as well that the public was outraged, because HMRC certainly was not. The taxman has long lost his appetite for dealing with large-scale evasion and avoidance (pursuing plumbers for taking cash-in-hand work is, of course, another matter entirely). HMRC accepted the clearly ridiculous claims of Starbucks, Google and Amazon that they had not made a profit in the UK. It waved through the Vodafone £6 billion write-off without even consulting its lawyers, and cut a number of similar deals with other companies, including the great vampire squid itself, Goldman Sachs.

Yet we should not be too hard on HMRC. What else should we expect them to do? Everything Starbucks and the others have done (perhaps not Vodafone, but I suppose we will never know) is perfectly legal. There is no sense in giving the taxman the finger if you do not have the law on your side; and so Starbucks et al pay out enormous sums to accountants and lawyers in order to save still more enormous sums on their tax bills.

More to the point, this is all by design. Some brave capitalist ideologues contributed a comment article to The Guardian arguing that tax avoidance is not immoral (917 furious comments at the time of writing),2 which pointed out the bleeding obvious fact that countries compete to offer attractive tax regimes to capital: exploiting the loopholes in Britain’s tax laws is quite as consistent with the spirit as the letter of those laws.

For Britain, the issue is even more acute. The world is littered with tax havens, of which the City of London is the daddy. While the UK has a headline corporation tax rate broadly comparable to other ‘first-world’ countries, the bald fact of the matter is that transactions nominally supposed to have occurred in tax havens proper - the Bahamas, the Channel Islands or whatever - for all practical purposes take place in the City. Our fair nation is the central organiser for the bulk of the world’s tax avoidance.

Even better than that, it is an economic model on which we are utterly reliant. The Starbucks controversy nudged George Osborne into blowing hot air about tax dodgers in his autumn statement, promising a pitiful sum to pursue lost revenue. Labour figures - most notably Margaret Hodge, chair of the commons public accounts committee - have likewise huffed and puffed on the matter.

They will do exactly nothing - because what tax they do cream off London’s status as the centre of offshore finance (often indirectly - the VAT on a Starbucks coffee, say) is needed to help prop up the country as a whole. Osborne’s denigration of ‘shirkers’ on benefits is based on lies, but his arguments about not scaring off capitalists with punitive tax regimes are quite valid.

This is the blind spot afflicting groups like UK Uncut most especially. Underlying their efforts is the naive dream that Osborne is only prevented from screwing the full amount of corporation tax out of Starbucks and the like by his ideological commitments. In fact, the problem is a quite genuinely global one, and has to do with Britain’s role in the world state order. Confronting that problem requires a serious strategic attitude to overcoming capitalism, for which harassing Starbucks customers is no substitute.



1. www.ukuncut.org.uk/blog/press-release-starbucks-hollow-promises-wont-stop-public-outrage.

2. www.guardian.co.uk/commentisfree/2012/dec/07/its-not-wrong-to-avoid-tax.