Starbucks Tax Avoidance: Analysis of Ethical Business Practices

This report provides an in-depth analysis of Starbucks' tax avoidance practices, focusing on the ethical implications and business impacts. The report examines the company's revenue, its relationship with shareholders, and the impact on public relations, particularly in the context of the 2012 controversy. It explores the distinction between tax avoidance and tax evasion, highlighting the legal and ethical complexities of Starbucks' financial strategies. The analysis includes the use of artificial corporate structures to shift profits and minimize tax obligations, leading to criticism regarding a lack of transparency. The report also considers the company's corporate social responsibility practices and the impact of the tax avoidance scandal on its public image. Finally, the report offers recommendations for improving Starbucks' ethical standing and financial practices, emphasizing the importance of transparency and responsible corporate behavior.

STARBUCKS

Executive summary:
The current report is based on Starbucks and its ethical or unethical practice of tax
avoidance which is regarded to major issues of year 2012 and need to be included within the
report in way of gaining knowledge and experience of the topic. Starbucks is multinational
American Coffee organisation and is one of the leading and largest coffee house chain which is
located 28218 locations and offers wide range of beverages and foods items like, smoothies,
coffee beverages, tea, etc. The annual operating income of company is 4.135 billion US$ with
approximately 238000 employees.

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
ANALYSIS......................................................................................................................................1
Revenue........................................................................................................................................2
Shareholders.................................................................................................................................2
Public relations.............................................................................................................................3
CONCLUSION................................................................................................................................4
RECOMMENDATION...................................................................................................................4
REFERENCES................................................................................................................................6

INTRODUCTION
Ethical issues are very much prominent within organisations all around the world as they
undertake several practice which is regarded to as against law of certain countries where they are
operating currently. One of the most common issue which they are facing is that of trust and
integrity within business as this would also be impacting their business and certainly their
customers as well (Al-Dhamari, Ismail and Ismail, 2018). The problem or the situation that
requires person or organisation to choose between alternatives that must be evaluated as right or
unethical. Among these cooking the books or conducting unethical means of practice to either
under or overvalue the books of account of company is the best known practice which is taken
place by companies these days. So in this particular report discussion is done on the same topic
of over or undervaluing books of accounts by undertaking Starbucks as the case study. The
particular report will be covering the analysis of whole case study of company with including the
tax avoidance and lack of transparency as well. Further the report will cover the relationship
between different stakeholders of company and social responsibility for the tax avoidance by
side of Starbucks.
ANALYSIS
Starbucks is multinational American Coffee organisation and is one of the leading and
largest coffee house chain which is located 28218 locations and offers wide range of beverages
and foods items like, smoothies, coffee beverages, tea, etc. The annual operating income of
company is 4.135 billion US$ with approximately 238000 employees. The core values of coffee
chain are focused on developing culture of belongingness and warmth among customers for
which it offers welcoming experience to its visitors. The firm is acting with courage and power
to develop status Quo. The mission statement of Starbucks aims at inspiring and nurturing
human spirit. In accordance with mission of Starbucks it can be articulated that business
implements every practice to inspire services and to keep business running.
The objectives of Coffee chain revolve around 3 goals that is involvement of community,
ethical sourcing and environmental stewardship. However, the goals of company are encouraged
and empower to serve satisfactory services to consumers as well as staff. However, in 2012 a
report by new agency Reuters was published against Starbucks where company was accused for
avoiding Tax. As per the investigation conducted it was determined that according to investor the
business was profitable and was gaining continuous returns but as per claim of tax authorities it
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was identified that business was not in profitable and therefore was unable to pay taxes (Jenkins
and Newell, 2013). In accordance with investigation, it was articulated that since Starbucks came
into existence that is 1998, it has experienced revolutionary success and in first year of business
the firm maximized 3 billion pound from sales of Coffee.
Tax avoidance is considered as legal until fiscal judge ask person or company to pay
more tax. On the other hand, there is tax evasion which is illegal according to rules and
regulation set by government (Bird and Davis-Nozemack, 2018). However, with continuous
investigation over Starbucks for Tax avoidance implied that in last 14 years of business the
coffee chain has paid only 8.6 million pound which is very less in comparison to profit earning
of an enterprise.
Revenue
The news publishing company continued investigation on Starbucks for 3 years from
where it is derived that in last three years coffee house did not any profit because of which the
company is not liable to pay tax but on the contrary it was identified that the firm was recorded
with sales up to 1.2 billion pound for which the business has paid not tax. The contrary of
revenue and sales clear denoted the tax avoidance by Starbucks. As per details of tax
contribution by Reuters, it was analysed that artificial corporate structures to take profit shift of
Starbucks was also accused.
However, on the basis of lack of transparency it can be argued that tax avoidance cannot
be considered as illegal as it occurred because negotiable changes managed by coffee chain to
reduce tax pay with the motive of maximising revenue. This made it difficult in determining
whether the business was coming up with fair amount of tax pay on its services which led to
major criticism. In accordance with avoidance Starbucks paid 8.1 million pound at 24 % rate of
corporate tax which was 4 % higher than corporate tax rate of UK which was 20% (Starbucks
pays UK corporation tax of £8.1m, 2018). The investigation by new publishing company was
also supported by tax pay of KFC which is American fast food chain which maximized revenue
of 1.1 billion pound for which the firm paid 36 million pound for corporate tax. The annual
revenue of the coffee chain was the ultimate base for accuse and claim.
Shareholders
The ultimate focus of Starbucks is on managing effectiveness in services with regard to
shareholders, employees and customer. However, from the investigation by Reuters it was
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analysed that the Coffee Chain have positive and long term relationship with its investors. The
focus of business is always on maintain beneficial relationship with investors and therefore,
during investigation it was revealed that official and executives of Coffee Chain have always
spoke about profits of company to its shareholders (Dowling, 2014). This was the major concern
from where it was argued that there were two contradictory situations of tax avoidance where
investors were not aware about tax avoidance of Starbucks whereas according to accounts and
expenses the business was not making any profit. Nevertheless, it was argued that tax pay was
inconsistent but company never compromised its quality of services to consumers and
relationship with shareholders.
Public relations
As per socially responsible Practices it is articulated that Starbucks came across major
barriers with public relations in Britain because of neglecting tax. Apparently, 15 years of
continuous operational success the firm paid corporate tax only once. The company avoided tax
pay with the help of various accounting combinations like, royalty payments, interest expense
and transfer prices (Campbell and Helleloid, 2016). Moreover, it was found out that the firm has
successfully shifted its taxable income to other subsidiaries of Starbucks because of which
organization was liable to pay taxes at lower rates. The firm was known for its corporate social
responsible practices and it was the base for public relations of Coffee Chain but the
investigation for tax avoidance creates change in perception of stakeholders which was the major
downturn for Starbucks for certain time period.
Starbucks is having major responsibility advocate both internal and public policies which
are supporting on health of their business, their employees and society under which they are
serving or operating into (Public Policy & Internal Standards, 2018). There are lot of policies
which company is following or demonstrating their commitment in way of bringing very
responsible within the business and undertaking profits as well. There are many ethical or global
ethical standard of business which is followed by their guidelines in way of conducting business
smoothly. Starbucks need to follow certain responsible rules and regulations like that of related
to health care, equal employment opportunities and global human rights as well.
Some socially responsible practices of company comprise fair wages to all staff members
and fair price distribution to Coffee growers of developing countries. Thus, from the claim and
investigation it was found that Starbucks was asked to join Fair Tax Mark Scheme (Starbucks
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pays UK corporation tax of £8.1m, 2018). In addition, the increase in UK tax bill led to difficult
year for the business but it assisted in growing sales by 3.8 %. Hence, it was indicated that
highest paid director earned 282,842 pound including pension contribution in 2015 after
compensating to corporation tax.
CONCLUSION
From the whole report it could be concluded that Starbucks for attracting more number of
customers for its investments as always showing more profits while for avoiding tax they were
claiming for loss into their financial reporting to all tax authority. This was the same case since
the starting of its operation from year 1998 as it was earning more number of profits and not
paying required or essential amount into tax. It was also noticed that Starbucks is reporting no
amount into profits even after having huge amount of sales each year. this was having higher
amount of revenue as included in above analysis apart from it companies like Amazon and
Google was also following the tax shamming process.
This was one of the most faced criticism for a company like that of Starbucks which is
regarded to as market leader in coffee company and coffeehouse chain in world. It was evading
the tax since past 14 years which came into light in year 2012 and then it moved its headquarter
to London from Amsterdam as well.
RECOMMENDATION
It could be concluded that the company is using unethical means of operation or practice
which is termed to as cooking the books of account (Lawrence and Weber, 2014). Then it was
also noticed that company is planning to change its way it is operating so that they could be able
to end up paying corporation tax within UK. They are having almost ½ of the coffee house in
UK then also they are not paying their corporation tax in UK. The company is operating under its
board of directors who are primarily leading the conducting business as they are dividing whole
of their business as per continents of world.
It could also be concluded that each of the continent which company is operating into is
having its own Starbucks coffee house and which all is accountable to the central board. As per
the ethical source of business it could also be included that company is having 4 of its category
farmer support, coffee and tea cocoa. All of them would be working harder in way of improving
the life of farmers and living conditions of plantation as company is having its own plantation. It
was all into the media coverage from around the world that such a huge public company which is
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having huge amount of sales. Starbucks is having most number of sales then also their profits is
lower down this is only done by company to evade the tax in UK.
So there are certain recommendations which were made on this respect for enhancing the
environment and values of company Starbucks should be planning for maintaining its
organisational culture. Apart from this it could that company should be changing its policy
regarding the tax and corporate so that they are been able to attract investments. If they are not
been able to do what their customers or investors are demanding then it would not be possible for
them to have desired profits.
The amount of profit which they are having or making each year must be shared by all its
investors and government agency for asking on the tax each year. There are many companies
which are avoiding the tax like that of Amazon and Google but it is highly means of carrying
unethical practice. They are avoiding tax for the reason of paying less amount of tax as their
profits would be decreased. But it was also included that tax avoidance is legal to certain extent
as it is not the same as that of tax evasion as if the fiscal judge is including that company must be
paying more tax whereas tax evasion is strictly prohibited and illegal in court of law.
So it could be recommended or suggested that company should be making strict law and
policies in respect to this tax avoidance which in future could be turned into huge crime as
regarded to as tax evasion.
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REFERENCES
Books and Journals
Bird, R. and Davis-Nozemack, K., 2018. Tax avoidance as a sustainability problem. Journal of
Business Ethics. 151(4). pp.1009-1025.
Campbell, K. and Helleloid, D., 2016. Starbucks: Social responsibility and tax avoidance.
Journal of Accounting Education. 37. pp.38-60.
Dowling, G.R., 2014. The curious case of corporate tax avoidance: Is it socially irresponsible?.
Journal of Business Ethics. 124(1). pp.173-184.
Jenkins, R. and Newell, P., 2013. CSR, tax and development. Third World Quarterly. 34(3).
pp.378-396.
Al-Dhamari, R.A., Ismail, K.N.I.K. and Ismail, S.S.H., 2018. vorheriger Artikel Does the
capital of social capital matter? Rela... nächster Artikel “Meta regulation in practice:
Beyond normative... Journal of Management and Governance, 30(2017).
Lawrence, A.T. and Weber, J., 2014. Business and society: Stakeholders, ethics, public policy.
Tata McGraw-Hill Education.
Online
Starbucks pays UK corporation tax of £8.1m. 2018. [Online]. Available through:
<https://www.theguardian.com/business/2015/dec/15/starbucks-pays-uk-corporation-
tax-8-million-pounds>.
Public Policy & Internal Standards. 2018. [Online]. Accessed through:
<https://www.starbucks.com/responsibility/learn-more/policies>.
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