The UK taxpayers’ experience with Starbucks has come to be true to what it serves – bitter, just like coffee. Starbucks has added a new metaphor to the corporate tax evasion cases. Overnight, the Starbucks sales tax evasion became the talk of the country as it emerged that the coffee chain dodged taxes for three consecutive years beginning from 2009, right under the nose of UK’s HM Revenue & Customs.
Breakdown of the Starbucks scandal
Starbucks sales tax contribution has been a paltry sum of £8.6 million in 14 years despite making more than £3 billion profits in its trading in Britain. Clever manipulations in its accounting techniques helped Starbucks to minimise its corporate tax contributions.
How did it achieve this herculean feat? Firstly, Starbucks reported a loss of £33 million on sales of £398 million in the UK. This meant it did not have to shell out any money towards corporation tax, although it had to pay value added tax (VAT) on in-store hot drinks. Secondly, Starbucks paid royalties to its own subsidiary for using its brand name. Thirdly, the coffee chain funded its British division through high-interest loans. And shockingly, all these techniques are legal.
Taking the cue from Starbucks sales tax dodging scheme, was McDonald’s, the second largest restaurant in the world, which said that it had not made profits in the UK for over 10 years now. In 2011, McDonald’s paid £26 million in royalties and licence fees to let the UK McDonald’s serve Starbucks coffee, using its labelling.