Why Starbucks' tax claims don't wash

Exterior view of a Starbucks Coffee shop in Mountain View, Calif., is shown on Jan. 3, 2012. Starbucks announced it is raising some prices regionally as it faces rising ingredient costs. The Seattle coffee chain is raising prices about 1 percent in the Northeast and Sunbelt regions. Starbucks wouldn't disclose all of the states its raising prices, but the regions include New York; Washington, D.C.; and most Southern states. They exclude California and Florida.
AP Photo/Paul Sakuma


(MoneyWatch) Members of Britain's Parliament on Monday grilled executives from Amazon (AMZN), Google (GOOG) and Starbucks (SBUX) over the companies' failure to pay much in the way of corporate taxes in the U.K. And as seems to happen with monotonous regularity, 'B' listers were put up by their companies to take the heat rather than the real power players.

It is a gruesome sight, seeing what some people have to do to defend their employers.

Perhaps most absurd was the performance Starbucks' Chief Financial Officer for the U.K., Troy Allstead. On sales of $4.7 billion, Starbucks had paid only $13 million in corporate taxes because, Allstead maintained, the company hadn't turned a profit in more than a decade of operating in the U.K. This, it has to be said, provoked widespread incredulity. If the company wasn't making money here, why did it stay? Allstead squirmed and argued that Starbucks "must be in the U.K. to be a successful global company" and said that they had "tremendous optimism" about the business here.

That argument, of course, carries no weight. Everyone knows Starbucks wouldn't be in Britain if it didn't make money. It beggars the imagination to think that the coffee franchise has proliferated around the country just to maintain a declining brand presence or to provide the social advantage of employment. That the company pays a 6 percent royalty to the company's headquarters conveniently located in the Netherlands, a tax haven for companies, seems to suggest that business isn't, after all, that bad. But the idea that Starbucks is just here for the good of British coffee drinkers is risible.

Allstead got a rough ride, as did Amazon's Andrew Cecil. He smiled more, but when he tried to argue that it was impossible for the retailer to break out U.K. revenue from its overall European sales, no one believed him. Instead they pointed out what everyone already knows: The company's business depends on infrastructure it doesn't pay for.

Google's Matt Brittin, vice president of Northern Europe for the search giant, did somewhat better by openly acknowledging that the company bases itself in Ireland because this allows it to pay lower taxes. Being honest about tax avoidance turned out to be the better strategy. "If Google had been founded in Cambridge, we'd be in a very different place." 

Consumers are becoming quite savvy about the many ways in which companies dump their costs anywhere but within their own balance sheets. As long as there was enough money around to build infrastructure, heat schools and pay for unemployment, no one much noticed. But those days are over. And companies, regardless of where they operate, that expect to get away with sending second-tier execs to deliver insultingly stupid answers to democratically elected representatives are asking for trouble.

  • Margaret Heffernan On Twitter»

    Margaret Heffernan has been CEO of five businesses in the United States and United Kingdom. A speaker and writer, her most recent book Willful Blindness was shortlisted for the Financial Times Best Business Book 2011. Visit her on www.MHeffernan.com.