Starbucks serves up a lesson on tax dodges

Seattle-based Starbucks is one of those ubiquitous consumer products, like iPhones, that I am just way too savvy, original and discerning to endorse.  In fact I enjoy taking pot shots at these Giants of Cool.

Anyway, I don't know if this story is making news in the U.S., but in Britain, Starbucks' brand name is taking a pounding after a Reuters investigation revealed that the chain has declared zero profit and paid zero corporate tax over the past three years on close to $2 billion in gross sales.  This is despite Starbucks' assurances to investors and analysts over the years that its UK business is indeed profitable, and its main source of revenue to expand into overseas markets!

So how does Starbucks get away with it, legally?  Three accounting gimmicks, according to Reuters.  First, by copying Google and Microsoft:

Like those tech firms, Starbucks makes its UK unit and other overseas operations pay a royalty fee - at Starbucks, of six percent of total sales - for the use of its ‘intellectual property' such as its brand and business processes. These payments reduce taxable income in the UK.

[...]  The fees from Starbucks' European units are paid to Amsterdam-based Starbucks Coffee EMEA BV, described by the company as its European headquarters, although Michelle Gass, the firm's president in Europe, is actually based in London.

Second, like most MNCs, Starbucks by pays "arms length" "transfer prices" to its Starbucks subsidiaries in other countries for its goods like coffee beans and wooden swizzle sticks.  This is basically Starbucks' right hand in a higher-tax country (Britain) paying Starbucks' left hand in a lower-tax country (Netherlands, Switzerland, etc.), and the right hand deducting the payment from its gross profit as a "business expense."

Third, Starbucks uses inter-company loans to its subsidiaries in other countries. Ridiculously, on paper, Starbucks' entire UK operation is funded by borrowed money, and to boot Starbucks UK pays its subsidiaries overseas a curiously high interest rate on that debt.  Starbucks UK (the right hand) gets to deduct the debt and the interest paid from its tax bill; meanwhile Starbucks overseas (the left hand) is based in a country that doesn't tax interest earned on loans.  The money is thus wiped clean.

Meanwhile, mom & pop coffee shops in the UK have no overseas subsidiaries with which to wipe out their tax liability.  Thus they compete with this giant on an uneven playing field. 

So you see, this game of tax avoidance that we all close our eyes to is not just a U.S. problem.  It's everybody's problem.  Governments have to start working together across borders to stop these MNCs from gaming the system at their host countries' expense.  

In the meantime, let's all agree to expand the definition of Corporate Social Responsibility (CSR) to paying your damn taxes in every country where you operate, at least once in a decade, for crying out loud!

Until they pay their taxes... Boycott Starbucks!

London mayor Boorish Johnson toasting Starbucks CEO Howard Schultz for running such an unprofitable operation in Great Britain and paying no tax.

(Sigh) No more Red Lobster with Shooter...

It looks like I'll have to cease my traditional New Year's Eve feast at the local Dead Lobster, because I don't want to give my business to a greedy corporation that won't give its employees health insurance.  

I urge you all to do the same: do your homework and figure out what big companies that you frequent have adopted a policy of hiring only part-time workers in order to avoid giving them health insurance, then start buying from ethical companies instead.

The people have spoken, they don't want single-payer health care, or the public option.  They want a mainly private market for health insurance.  That means the private sector and private citizens must participate to avoid the free-rider economic problem.  

The good news is, it's America and there are a bazillion casual dining options, not to mention a bazillion of everything else.  We're spoiled for choice as consumers. There have to be a few who will do the right thing... and wouldn't mind marketing themselves as such.

"But won't lots of smaller local businesses start giving their employees only part-time hours, too?" you ask.  They may indeed, at first.  But large chains like Florida-based Darden (the owner of Red Lobster, Olive Garden and Longhorn Steakhouse) are an easier target.  Indeed, let's not put mom-and-pop places in the same category as a mega-corporation like Darden that can spread the cost of health insurance across a larger pool, and should be able to fit this in their cost structure.  It's the huge chain establishments that put cost pressure on local and mom-and-pop establishments, not vice-versa. So if health insurance for all employees becomes the accepted ethical norm among Big Business, it will be easier for smaller competitors to follow suit.

The boycott this year against Hyatt Hotels, "the worst employer in the hotel industry," by the NFL players, Sierra Club, AFL-CIO and 5,000 other individuals and organizations shows that high-profile, organized action against irresponsible corporations can be successful.  

UPDATE (12.20.2012): Daily Kos labor reporter Laura Clawson noted that Darden Restaurants' profits have dropped 37 percent since their public complaints about Obamacare and their intent to cut employee's hours. Darden has since back-tracked slightly -- to no avail, apparently.

Darden tests limiting worker hours as health-care changes loom

By Sandra Pedicini

October 7, 2012 | Orlando Sentinel

URL: http://articles.orlandosentinel.com/2012-10-07/business/os-darden-part-time-workers-20121007_1_darden-restaurants-health-insurance-olive-gardens