Starbucks needed a strong coffee this week, after the revelations about its tax contribution. Since it opened its doors in the UK in 1998, the company has only paid 8.6 million pounds in corporation tax, despite 3 billion pounds in sales – which is a lot of lattes!
And whilst Starbucks hasn’t actually broken any laws, as the 3 billion pounds is turnover not profit, and thus the company isn’t obliged to pay any more, it seems from the Reuters report that this has been done with a little bit of clever accounting.
The UK unit pays a royalty fee to the company, at 6% of its sales for use of its ‘intellectual property’, which substantially eats in to the profits. Added to this the coffee beans are produced in Europe, and therefore according to Starbucks CFO, ‘the profit sits where the value is created.’
At a time of economic uncertainty, with the government struggling to shrink the deficit, people are more and more inclined to tighten their belts. Seeing a huge company like Starbucks beating the system isn’t going to go down well. People have less money to spend on fripperies, and when the British High Street is having difficulty, press like this, isn’t going to encourage the public to go and spend their hard earned cash.
But, perhaps worse than this, is Amazon. Its monopoly of the book world is renowned, but it’s been reported that they are demanding that their UK publishers, factor in the 20% VAT rate on e-books and knock this amount off the cost price of the book, thus lowering the profits this market can make.
This would be understandable in a business sense, if Amazon weren’t already benefitting from paying a meagre 3% VAT, due to their base in Luxembourg. So in effect they are getting a 17% discount on the cost price of the e-books they’re buying, which significantly decreases the profits the publishers can make.
The publishing industry employs nearly 200,000 in the UK, if Amazon continues to cut down on their profits it’s bound to have an impact on the number of people employed in the industry.
Huge companies like these should be working to revitalise the economy, clever tax avoidance and holding the market to ransom might reap benefits in the short term, but in the long term, the more money being ploughed into our economy will give it the energy it needs to get back on its feet, in turn giving the general public more spare cash to spend on kindles and coffees.
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