Starbucks, Tax and Idiocy.

On my local high-street, which leads up to a market square there is an independent coffee shop, Cafe Rouge, Thorntons, Greggs, Costa Coffee, and on the Market square there is an independent next door to Starbucks and another selling coffee from a trailer in the middle of the Square. All of these are within 300m of each other. All of them sell coffee, as do the 5 pubs and two other restaurants which you would pass were you to walk from one end of the high-street to the other. That’s before you consider the 4 sandwich shops which also sell coffee to take away. At nearly half the premises in the high-street, you can buy a coffee.

Is anyone surprised that Starbucks is not making money in the UK?

The UK’s corporation tax rate is 28%. Starbucks paid a rate of 31% globally. Surely they should be declaring profit here if they can?

Once again, the UK uncut crowd are simply wrong; but that didn’t stop MPs jumping on the bandwagon. What must be especially galling for a company making little profit in a brutally competitive market-place is being hauled in to face questioning by a new-Labour parasite like Margaret Hodge. Hodge, herself a multi-millionaire whose family business, Stemcor also pays its tax globally, at a global rate of 41%, (which suggests they need a better accountant) but pays very little of that in the UK. Hodge may not be an expenses cheat, but that’s probably because she was born into the fabulously wealthy Oppenheimer family and doesn’t need to be.

What’s really pissing me off is the reporting of tax as a proportion of revenues in order to give a low number. If your margins are low, as in food and beverage retail, you can have huge turnover, off which you’re skimming a little profit, after wages, payroll taxes, overheads, materials, property and so on. Taxes as a percentage of revenues is an utterly meaningless number, yet this is becoming the dominant ratio in the idiot left and the mainstream media.

So here’s a little guide. Revenues is the money you take from customers. Corporation Tax is NOT calculated on this number, Value Added Tax is, and no-one’s suggesting VAT is being avoided. Then there’s costs of sales, which represents all the things you do to make those sales such as employ people, buy materials and stock, rent or buy premises. You also include your central functions, such as HQ staff and buildings. Revenues less cost of sales is known as ‘operating profit’, or sometimes ‘profit before tax’ or ‘pre-tax profit’. You then apply the tax-rate to that number.

Please don’t report tax as a percentage of revenues and call it tax-dodging because that marks you out as an utter moron.


10 replies
  1. Weekend Yachtsman
    Weekend Yachtsman says:

    My youngest son works in a large National Trust propert, in the restaurant.

    He keeps telling me that they "made" £3000 today, or £2000 on Sunday, or some such figure.

    I have tried to explain that you might easily put £3000 in the till in one day and still be running at loss. He understands this (he's not stupid) but he regards me as a bit of a pernickety old pedant for pointing it out.

    I blame State Education.

  2. Starship Fighter
    Starship Fighter says:

    I am glad to see I'm not the only person who finds themselves swallowing bile when this bullshit is bandied about in the press. I could just about bear it when it was the economically-illiterate UK Uncut making statements and such, but when the newspapers and the BBC got hold of it and decided to run with it I began to fume. Not only does every one of these media outlets minimise their tax in some way, making them total hypocrites (like La Hodge…), but it seems to be part of a wider, anti-business attitude which the media is determined to push. The last thing we as a society need in these current straigtened times is the MSM pushing a socialist agenda as if it is some kind of cure for corporatist evil. It isn't. We've got to trade our way out of this mess, and making the country a less pleasant place for people and corporations to do business is not only foolish, but dangerous as well.

  3. Anonymous
    Anonymous says:

    I thought the issue with starbucks is they make 6% profit, then send this 6% profit as royalty fees to another country which pays lower tax, and report a loss in the UK (and do the same in Germany).

    Whilst royalty fees are normal, the thought was that they were deliberately fudging them upwards to move the tax payments elsewhere.

    I am not sure if it's entirely true, but it seems more plausible than the other bullshit "tax dodger" examples of UK Uncut etc.

    Also its all perfectly legal regardless……

  4. jimbob
    jimbob says:

    I remember TIM harford covering this a couple of years back, regarding station outlets. railtrack charges a bomb for these sites and so they all operate at a loss in effort to get market share in a growth area. they are still jostling. this anti corporate anti state ranting is a problem. there are other reasons to hate Starbucks such as making it ok to wander around clutching cardboard cups full of overpriced burnt shite and thinking its sophisticated. and putting locally owned small businesses out of business.

  5. Umbongo
    Umbongo says:

    Yesterday, in the Times (behind a paywall I'm afraid) Tim Worstall explained in, what, 300 words why this hoo-hah over tax avoidance and multinationals is a load of crapola. One paragraph sums it up:

    "These companies are not making a mockery of our tax laws: they are obeying the rules and regulations in each and every particular. They are not even avoiding tax, as these companies are doing specifically what the law intends, even to the point that we have laws that forbid national governments from stopping these multinationals doing what they have been doing."

    Worstall then asks the following question:

    "Why do we now have such an incompetence of politicians whining about the laws that they have spent the past four decades enacting?"

    God politicians are scum!

  6. Anonymous
    Anonymous says:

    Multinationals of all stripes are avoiding tax by mis-pricing their royalties and interest costs from offshore capitve companies at excessive rates, sucking the profit out of the UK to a tax haven, and then not paying tax on it.

    HMRC haven't got the balls to takle the transfer pricing avoidance industry.

    And thats even before you start with Amazon, selling from a Luxembourg company. Legal fiction to cover a reality where the sale is from a UK warehouse. The UK needs a a common law doctrine of common sense, substance over legal form, to prevent the abuse of legal rights, and recognise the sales as being made where they are actually made, in the UK, reallocating the profit back to the UK, and then charging tax on it.

  7. Uncle_Lumpy
    Uncle_Lumpy says:

    I don't think people are unhappy that they're paying a low amount of tax on a high turnover, it's the fact that they are using quite obvious methods to avoid paying tax on genuine profits.

    As Starbucks execs have said, the UK model is very profitable and something they might want to try elsewhere.

    Now either they're making a profit or they aren't.

    Accountancy rules that allow them to pretend that using the Starbucks brand costs £x and that they have to buy their beans from a Swiss Starbucks subsidiary and have them roasted by a Dutch Starbucks subsidiary is not reasonable and quite obviously a ruse just to appear that they are making minimal profits.

    By all means, lower Corporation Tax so more companies do business here, but, hey, don't take the piss.

  8. Anonymous
    Anonymous says:

    Good piece. I've spent months fruitlessly trying to explain this. One thing I've tried is suggesting that people objecting to low tax on profits can simply buy shares and give some of their dividends to HMRC, but I don't think people quite understand why this is the same. There is an idea that corporate fat cats are somehow taking the profits for themselves – nonsense because they'd simply pay themselves more and reduce profits. When in fact the profits tend to go to pay pensions and by definition are not retained in the corporation except for reinvestment.

    You do wonder what people think will happen to investment when return on investment is reduced too. Crazy.

    Italy has the strictest rules on transfer pricing of any country in Europe. Not exactly a wonderful example of success, is it?


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