The Strategist

Starbucks is Under Suspicion

04/07/2015 - 16:01

European Union regulators are studying tax practice of largest coffee-shop chain in the world Starbucks Corp. Initially their suspicions were aroused by the fact that over the years the company records losses in major European markets, despite the hundreds of millions of revenue, writes The Wall Street Journal.

The investigation was initiated in 2014, and at the very start, Starbucks headquartered in Europe, who was at that time in Amsterdam (and later moved to London), recorded a profit of 407 million euros ($ 446.6 million) for the 12 months completed in September. The main source of income at the same time were 502 million Swiss francs ($ 527.8 million) of dividends, drafted by coffee purchasing division based in Switzerland, which has less than 40 employees.
On this ground, the EU has launched the second investigation. European competition commissioner Margrethe Vestager promised to publish the results before the end of June 2015. Experts do not exclude that Brussels would require substantial additional taxes payments from Starbucks.  

Starbucks claimed that the complex structure of the European branches, the center of which until recently was not United Kingdom but Netherlands, do not aimed on tax evasion at all. The group explained the structure that its coffee roasting facility is based in Amsterdam, as well as the historically close ties with Amsterdam's coffee business.
However, the tax advantages of this solution are obvious: despite the received last year profit of 407 million euros, Starbucks paid income tax in the amount of 2.6 million euros in the Netherlands, that is at a rate of less than 1%. EU officials see this as a deal with the Government of the Netherlands.
The division of the Swiss buys all coffee beans that Starbucks uses around the world, although the coffee have never been carried through Switzerland. Then the grains are sold to Starbucks subsidiaries all around the world at a premium of 20%. Starbucks CFO Troy Alstead gave this explanation in 2012 to British Parliament, which also have questions about Starbucks’ taxes. British lawmakers have questioned the fact whether is 20 percent premium justified.   

In October 2014, after the end of the previous financial year, Starbucks Swiss unit transferred dividends to Amsterdam. And on the same day, the bulk of this amount was transferred from Amsterdam to London - to a new holding company, one of the three Starbucks created in the UK since June last year. After that, Starbucks has eliminated a framework Aldi LP, registered in London and being the subject of the first EU investigation.

Currently, in addition to Starbucks, European regulators are also investigating the practice of taxation of three multinational companies in Europe - Apple, Amazon and Fiat Chrysler Automobiles.


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