Starbucks Corporation: Tax Avoidance Controversies in the United Kingdom (B)

Abstract

An investigative report into corporate tax avoidance prompts an increasingly powerful citizen’s group to target Starbucks’ UK operation. Starbucks faces numerous sit-ins and boycotts throughout the UK. Increasing public outcry grabs the attention of Parliament which summons Starbucks’ CFO Tony Alstead to come testify. Austerity measures and complex international tax laws further complicate the matter. As a corporation that prides itself on social responsibility, Starbucks must decide between their duty to minimize tax liabilities (for shareholders) and their promise to serve the communities where they do business.

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Resources

Exhibit 1: An Open Letter from Kris Engskov

06 December 2012

Posted by Kris Engskov – Managing Director, Starbucks Coffee Company UK

Today, we’re taking action to pay corporation tax in the United Kingdom– above what is currently required by tax law. Since Starbucks was founded in 1971, we’ve learned it is vital to listen closely to our customers – and that acting responsibly makes good business sense.

Over the more than 14 years we’ve been in business here in the UK, the most important asset we have built is trust. Trust with our partners (employees), our customers and the wider society in which we operate.

The fact remains that Starbucks has found making a profit in the UK to be difficult. This is a hugely competitive market and we have not performed to our expectations over the many years we’ve been in business here.

It has always been our plan to become sustainably profitable in the UK. We annually inject nearly £300 million into the UK economy and are exploring additional initiatives to expand our growth and speed our way to profitability in future.

And while Starbucks has complied with all UK tax laws, today we are announcing changes that will result in the company paying higher corporation tax in the UK. Specifically, Starbucks will not claim tax deductions for royalties and standard intercompany charges. Furthermore, Starbucks will commit to paying a significant amount of tax during 2013 and 2014 regardless of whether the company is profitable during these years.

Starbucks will continue to open our books to HM Treasury and HM Revenue and Customs on an ongoing basis to ensure our financial performance and tax structure is transparent and appropriate.

The commitments Starbucks is making today are intended to begin a process of enhancing trust with customers and the communities that we have been honoured to serve for the past 14 years. And we will do even more. Our contribution will increase as we train over 1,000 apprentices over the next two years and pursue a series of initiatives that will increase employment and investment.

We know we are not perfect. But we have listened over the past few months and are committed to the UK for the long term. We hope that over time, through our actions and our contribution, you will give us an opportunity to build on your trust and custom.

Yours sincerely

Figure

Kris Engskov, managing director, Starbucks Coffee Company UK 1

Reference

1. “An Open Letter from Kris Engskov,” www.starbucks.co.uk, 06 Dec 1012. http://www.starbucks.co.uk/blog/an-open-letter-from-kris-engskov/1249

This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.

2024 Sage Publications, Inc. All Rights Reserved

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