Complex reputational issue? Wrestling with the intricacies of public perceptions of moral conundrums? Perhaps a coffee will help? Or then again …
I am, of course, referring to Starbucks, who seem to be all over the press all of a sudden. I’m not – often – a Starbucks customer: I have no personal axe to grind. Why should I when I have a little Moulinex gizmo at home that does the beans just perfectly? Having read Howard Schultz’s Onward, I did not become a convert in the process. Appropriately enough, I found the book to be largely froth. But while I may be the sort to snort at a coffee chain inspired by the cafes of Milan that hasn’t the confidence to open a branch in Italy (and I’m self-denigratory enough to admit it), my reactions to the brand are not universal: branches are now pretty much ubiquitous. It’s possibly the idea of bringing us the authentic Italian coffee shop experience that sticks in my craw: although Starbucksmelody cites recent company announcements about stopping the use of cochineal in the Red Velvet Whoopee Pie as evidence of a listening organisation, I can’t help imagining what you might hear if you tried ordering that in a Milan piazza. I’m guessing you wouldn’t find it in your phrasebook.
These, however, are the gripes of those who do or don’t like the Starbucks experience. As they say on television, other brands of coffee are available. Possibly other brands of Red Velvet Whoopee Pie too. The company’s present predicament is much fuzzier. We are, of course, talking about tax arrangements. Or rather, different groups’ responses to the company’s decision to pay more corporation tax in the UK in future. At this point, it all gets very complicated. No amount of coffee made any of it make sense when I tried to grasp it, but let’s try to cover some of the groundwork …
Let’s start with the money, and with a definition from HMRC:
Taxable profits for Corporation Tax include:
- profits from taxable income such as trading profits and investment profits (except dividend income which is taxed differently)
- capital gains – known as ‘chargeable gains’ for Corporation Tax purposes
Starbucks, trading in the UK since 1997, has reported losses in all bar one of those years, and has paid no corporation tax in four years (and not a great amount across all fifteen). A modicum of disbelief is allowed at this point, as a) why would you keep bothering after all this time, and b) there’s a Reuters article that really rather embarrassing. The implication that the company could be paying as much as 725,577.31 Euros per person for its European HQ certainly suggests that it might try to locate a slightly cheaper district of Amsterdam in future. But apart from the level of detail in the Reuters article, which doesn’t make it through the news-soundbite editing applied in mainstream media, this is probably not news to you.
But all this is, as far as I can tell from what I can find, entirely legal. It may get up your nose faster than the end of a straw you didn’t quite notice (but not as fast, perhaps, as some other multinationals we could mention), but ‘Stop, Thief!’ and a hasty citizen’s arrest would be – legally at least – out of order. The offence caused – and it has been – is not legal but moral. That’s not UK Uncut saying so, by the way, it’s the House of Commons Public Accounts Committee:
However, we were not convinced that their actions, in using the letter of tax laws both nationally and internationally to immorally minimise their tax obligations, are defensible.
It appears that being called indefensible by the Rt Hon Margaret Hodge MP triggered some kind of epiphany. And that epiphany was underlined by media coverage, social media mutterings and the uprising of a number of protesting groups. Hence Starbucks’ Press Release last week:
We have listened to feedback from our customers and employees, and understand that to maintain and further build public trust we need to do more. As part of this we are looking at our tax approach in the UK. The company has been in discussions with HMRC for some time and is also in talks with the Treasury.”
That ‘need to do more’ turned out to be to a pledge to pay £20m, whether profitable (see above) or not. Which some will read as ‘it’s a fair cop, guv’, or ‘At least they’re listening’. The latter is one of the points that Doug Shaw makes. (Personally, like Starbucksmelody, I saw a parallel with the earlier crushed dead bugs moment, although the parallel I saw was ‘How has this only just come to your attention?’ I’m not sure you accidentally stumble into a complex multi-territory tax arrangement any more than you ‘discover’ you’ve been using cochineal for some years.) In this weather – and this climate – if anything sells faster than coffee to its target demographic, it’s umbrage. Judging by news reports over the weekend, sales of umbrage have rocketed in many parts of the country. Along with alternative sources of skinny decaff latte frappucino.
From my slightly confused vantage point, I get a sense of stalemate. Starbucks has been acting within legal codes, there has been moral disapproval and it has acted to ameliorate dissatisfaction. Unfortunately, no-one seems to be happier as a result. Janet Street-Porter, writing in The Independent, wanted the money to have been given to charity. In a straightened world where the needy are being hard hit by on-going austerity (extended only this week to 2018 by the Chancellor), you can probably understand why. Except that taxation is centrally gathered for dispersal. I have a vote and a tax bill to go with it (no taxation without representation and all that), but I don’t get to say that I want my tax contribution to spent on a and b but not f or j.
Likewise, Starbucks moving of profits from one territory to another is entirely understandable, and I assume our collective contributions are therefore taxed in The Netherlands. But while it’s comforting to think that we may be funding the crèches and the low-income families of our European neighbours, we don’t have a say in the spending decisions of the Dutch Treasury. Which rather takes us back to taxation vs representation again.
More pressingly for Starbucks, their move doesn’t seem to have satisfied many people either. The Daily Telegraph quoted Patrick Stevens, President of the Chartered Institute of Taxation
If Starbucks is saying its current tax arrangements are all agreed with HMRC, then in commercial terms, it is making a gift to the Government, not paying tax. It’s gobsmacking really. […] Will we have a payment level of companies that sell to the public, particularly with younger customers, and then another level of tax for the rest? It’s shown the flaws in the UK system.”
UK Uncut, meanwhile, called the move “just a desperate attempt to deflect public pressure.” Guido Fawkes may have been (equally predicatably) hostile to UK Uncut, and elsewhere this has become an issue about Europe or EU membership (again, rather predictably) but Order-Order’s post that was meant to be aimed at Max Clifford – Front Page Ate My Reputation – may have inadvertently been more prophetic.
As TaxJournal reported (particularly in its reporting of an interview with ITV News Laura Kuenssberg), a voluntary payment – which HMRC may not be legally able to accept – may yet make a complex and confusing situation even more so. But I can’t help but feel that Starbucks have – without quite explicitly saying so – shone a light on a slightly different argument here. As a public-facing company that deals directly with its customers, it must face their opprobrium when it is seen acting in ways that annoy or irritate them. And, as Neil Flatly of The Guardian pointed out, tax arrangement changes take time to put in place: in the meantime, the public can quickly find another coffee outlet. Starbucks judgement has been that its reputation in the UK is worth £10m a year – indeed in an exchange with John Redwood on the Today programme, Evan Davis was rude enough to call this ‘a marketing cost’.
And so, head-spinningly, it all goes on. But I’m left pondering that reputation management has become more complex. UK Uncut will, I suspect, never be truly happy with Starbucks: their world outlooks are polar opposites. But the message Starbucks may be sending to other companies is that compliance in itself may be no more adequate in reputation management than in anything else. Whether Google’s motto is or was “Do No Evil” or “Don’t Be Evil”, Forbes had an opinion on the matter last year and many in the UK may have a stronger one now.
There’s an interesting post by Caleb Storkey, written as an Open Letter to Kris Engskov (Starbucks’ UK Head). Parts fail to convince: the gushing opening paragraphs I could live without. The praise for using Fairtrade coffee needs tempering: Starbucks only uses 100% Fairtrade coffee in the UK and Ireland, after public voices were raised, even if its global fairtrade purchases are very considerable. That mark up on beans coming via Switzerland doesn’t help either. And Storkey not only advocates the charitable route (see above), but is also clearly (although openly) a consultant selling consultancy. But Starbucks might be able to set examples to other (frankly larger) fish in the global oceans. And a Chief Listening Officer is not such a bad idea. Although he or she might hear that what the disgruntled want is something other than grants for entrepreneurship, blogger involvement or more websites.
There are no easy solutions here, but the can of worms is now open. Like any open can, its contents are likely to turn pungent more quickly and the answer is not to devise an organisational equivalent of Febreeze.