Tuesday, October 16, 2012

Smitten By Ideas: Starbucks - A Licence to Lose Money


Source: Starbucks 

Although this post is more finance related, I can't help but to share this special report from Reuters, which uncovered some interesting facts about Starbucks’s creative accounting methods.

Over the past 3 years, Starbucks's UK subsidiary has reported no profit and paid no income tax despite registering £1.2 billion in sales. As guided by the reporter, tactics used by Starbucks are perfectly legal and are being practiced by multinationals all over the world.

Under the current UK tax regime, companies such as Starbucks are allowed to pay royalties to subsidiaries where country tax are much lower (i.e. Switzerland - as low as 2%). In addition, Her Majesty’s Revenue and Custom (HMRC) also allows companies to deduct intellectual property fees if firms can show that the charges were made at “arm’s length”.

More interestingly, transfer pricing seems to be a popular way for companies to minimize tax bill, by allocating some funds generated in the UK to other subsidiaries in the supply chain, where corporate tax are much lower.

Another way to cut taxes is through inter-company loans, where parent company will charge a high interest rate on its inter-company loan, benefiting both companies in term of taxable income. 

For the full post on How Starbucks avoids UK taxes, click HERE.

Happy Reading! =)

22 comments:

  1. heh, i just realized that i haven't contributed any money to starbucks so far this year! or at least not directly :D

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    1. Good for you. I actually consume quite a lot of starbuck coffee...i think is time that I reduce my spending.

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  2. Haha.. so , are you a fan of Starbucks ?;P I am happy to say NO, NOT AT ALL. . . It's just way too expensive for me for some sugary, creamer-laden beverage with no nutritional value at all! ';D

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    1. I'm a coffee fan. I drink any kind of coffee but i usually have it in black - no sugar and no cream to be precise. =D

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  3. i used to patron Starbucks every alternate day...but i realise it sucks all my moolah and gave me few pounds i don't need at all!

    now i only go like once in a berry blue moon...kiamsiap jor now :/

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    1. Hehhee i usually go for the cheapest drink on the menu which is brew of the day =D

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  4. If its legal, than nothing much can be done. Besides others are also following. I can't remember when was the last time I patronized Starbucks. I prefer the kurang manis teh tarik from mamak stall.

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    1. Heheheh i can't drink milk, so i usually order teh o kosong =D

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  5. I have Starbucks once a week. Cappuccino FTW!

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    1. Heheh is nice to pamper yourself once a week with a dose of hapinness =)

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  6. Actually I think Starbucks quality has gone down the drain tremendously...

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    1. I actually prefer coffee bean. =) Starbucks coffee is a bit diluted for my liking.

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  7. I'm not exactly a Starbucks fan but more of a Coffee Bean one. Starbucks drinks are too sweet for my liking......

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    1. same here! high five! coffee bean is wayyyy better than starbuck!

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  8. If the tactics Starbucks use are legal, there's nothing we consumers can do but boycott 'em. Luckily I don't patronize Starbucks that often.

    Like Shirley, I'm more of a Coffee Bean fan too. Their coffee varieties suit me much better... especially their Cappuccino and Iced Blended Chocolate/Vanilla.

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    1. I'm a coffee bean fan too! The coffee quality is much better compared to starbucks.

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  9. that's why we study taxes in uni right..to learn how best to avoid paying back hard earned money to the ga'men..haha

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    1. hahahahaa....but u know what, i don't pay attention in school, so all this are pretty new to me. i'll come look for you if i wanna lari tax =)

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  10. Interesting post...nice to see their ideas & how they play

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  11. oppss... i have bought alot from starbucks..indirectly contributing eh?

    Latest: CAUTION: It's Flaming!

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    1. well if you owned starbuck shares in the US, you will benefit from it =)

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