The Tax Avoidance of Starbucks in the UK - Essay Example

The Tax Avoidance of Starbucks in UK Introduction The empirical and theoretical research work conducted over the years with evidence from the case study of multimillion corporations continues to produce extensive literature on the aspects of ethical judgments and constructions within business operations. In factoring the study on the procedures entailed in business ethics, it is essential to create an intensive understanding of the basis of the ethical choices of people, as they relate and function within the company corporations (Weiss, 2009, p 38). Such case incorporates the recent reports that Starbucks Corporation faced regarding its avoidance in paying the tax from its operations. The failure of the world major corporations to honour their tax responsibilities is not a new case of challenges facing the establishment of ethics in the business community. The extent of the implications of tax avoidance reflects accordingly across all nations, from the poorest to the most developed. The United Kingdom is not exception with corporations such as Amazon and Starbucks among others facing such cases. The case of such occurrences elicits angry comments and reactions from the residents and protest groups of human rights, as the tax dues constitute a key cause of implied financial crisis in the country. Starbucks Corporation Starbucks Corporation is a US based coffee giant retailer (Behar & Goldstein, 2007, p 23). The coffee menu famously baffles the customers (Simon, 2009, p 56). The corporation has functioned in the UK for over 14 years since entering the markets in 1998. The Starbucks Corporation, since entering the UK market it has established over 750 stores and employs about 8500 employees in the country (Gilbert, 2009, p 65). The company also enjoys a warm reception in the country, engaging in its daily operations accordingly. However, in recent years, reports of its non-remittance of taxes have continued to cause confusion as to the profitability of the corporation (Pham-Gia, 2009, p 21). Consequently, the company continues to suffer from the claims as they extensively impact its reputation and operations. Ethics of business The failure of the major corporation to honour its tax pay cuts constitutes both legal and ethical issues of business operation. In view of the evidence realized in the cases that ensued in the corporation operations, the key factor of consideration includes the tax liabilities of the company, irrespective of the profits they realize. Notably, the corporation has in recent years been registering a steady growth curve, with an increase in profits. This trend in growth reflected that the company was operating in a margin of profits. However, in the wake of the tax avoidance claims, the core realization of this growth emerged as the revenue that they avoided remitting tax to the UK government. Operating in a diversified field as the case of Starbucks Corporation requires strict adherence to the regulations set forth in the market and country of operation. Theories are elemental aspects of understanding the subject of ethics as implemented in each daily activity at the individual level to the corporation level. Thus, in view of the ethics of business, key theories apply accordingly in reflecting and explaining the actions of the corporations and the leaders of the corporations. Notably, Starbucks Corporation has a core management team, which facilitates the growth of the corporation and its success accordingly (Schultz & Yang, 2010, 56). However, the aspects of egoism, ethical relativism and utilitarianism reflect evidently in the case of the tax avoidance by the company. In reviewing the case study and the activities that ensued, including the reaction of the leadership to the claims of tax avoidance, the case is remarkably evident in the various ethical theories. The free market theory is a practical approach taken in many multination corporations to engage the various international markets accordingly (Brenkert, 2009, p 38). Similarly, Starbucks Corporation realized the aspect of the free markets in the UK and engaged accordingly to establish itself in the country. Consequently, the company sought to establish a successful business that would competently beat the competitors in the country. This constitutes the beginning of the ethical theory of egoism as entailed in many actions of the corporation. Like any other business entity, Starbucks Corporation sought to gain profits from the engagements with the market. The company sought to act in its benefits accordingly, as it engaged activities that saw it provide services and gain profits in return. As the corporation grew, it began realizing the implications of the vast taxes it was paying to the government, such as remitting a royalty fee of 6% of the total sales, which is remarkably high compared to others in the same industry in UK. Consequently, the company began acting in its favour to factor in the actions that would facilitate it make profits while remitting minimum taxes. For instance, Starbucks sought its eans through the Starbucks Coffee Trading Company in Switzerland, and roasting the beans through a subsidiary in Amsterdam. Consequently, this required Starbucks to give a share of the UK earned tax to its Dutch and Swiss trading units, a procedure called transfer of prices. Thus, the company used these procedures to minimize the tax it pays; hence, acting in its own good. Consequently, this constitutes egoism on the part of Starbucks Corporation as evidenced in the tax avoidance procedures undertaken. Further, in view of the responses and the evidence thereof from the company, the company acted in its interest, by undertaking a shift of its profits to low-tax jurisdictions, which is against the guidance of the UK tax authorities, leading to ethical egoism as a characteristic of its operations. In the practical ethics approach, the course entails the belief that all things are right, depending on the particulate prevailing point of perception undertaken by the individual, culture or historical period, hence, ethical relativism. The Starbucks Corporation entered the UK market in 1998 and continued operating under the set regulations of the market accordingly (Pahl, 2008, p 89). However, as the company extended its operations, operations and perspective of the market and regulations also continued to evolve. Notably, the UK tax authorities do not favour the practice of internationally operating companies transferring profits to low-tax jurisdictions to help reduce the tax remitted. Starbucks Corporation reassured the public that the company consistently adheres to the local accounting and tax laws in areas where they do business, as evidence in its ethical code of conduct. The company based in U.S. states that it is obliged to follow the Generally Accepted Accounting Principles (GAAP) in engaging its shareholders (Tiley & Loutzenhiser, 2012, p 43). Moreover, the company is subject to the UK accounting elements regarding its interest payments and taxation, which requires them to calculate the taxable income after accounting for their intercompany license and interest charges (Tiley & Loutzenhiser, 2012, p 43). Consequently, the company after calculating the charges and differences from its activities, it realized albeit small profit with no taxable income report hence there was no corporate tax to remit in UK. This emanated from the evaluation of the company, which show that Starbucks has inter-company loans. In repaying the loan, the borrower, in this case Starbucks, can set the interest against taxable income, bringing a double tax benefit to the company. After evaluating the company accounts, the findings show that it used the profits for which it would pay tax to fund its debts. However, in view of the UK tax authorities, this entailed practices that reflect ethical relativism. The company acted in ethical relativism by considering its particulate needs against the expectation of the UK tax authorities to remit tax on the profits gained as outlined. Further, the company also acted in prevailing view of the period, as the company was not registering the expected taxable profit margins, as evidenced by the report of its accounts, which reflect that it was paying debts. Consequently, the company did not remit corporate tax to the UK government (Treviño & Nelson, 2011, p 27). Ethical relativism contributed accordingly to the case development as the Starbucks Corporation only acted with a view of the prevailing period and the challenges it faced. For instance, the wake of the depression period was elemental in influencing the debts of the company and its costs of operation. Thus, the case for forfeiting the taxation rates as expected of the company, ethical relativism in his context applies to the case of Starbucks Corporation in its engagements and avoiding taxation. Further, in the understanding of the Utilitarianism theory, an action is explainable and correct where it brings the greatest possible good. The good is identified as the pleasing aspect entailed in the action and the company engaged accordingly in view of this theory. Notably, the company envisioned that tax avoidance, basing on the set prerequisites of the guidelines and rules of accounting; it was acting in its best interest and for greater performance in future (Bredeson, 2012, p 61). This illustration, as evidenced in the excuse for avoiding the corporate tax, is weak compared to the greater possible good it would gain in paying the taxes. Notably, due to the claims, the public and customers of the corporation received a negative perception (Bussing-Burks, 2009, p 46). Consequently, this impaired its brand name and caused greater losses to the operations of the company. The company has to institute greater costs to re-establish its initial status of a reputable corporation, a process that is lengthy and costly. Thus, in acting in egoism the company suffered the repercussions of utilitarianism. If the company had remitted the taxes as required, it would gain the benefit of further continuing its reputation and eventually make gains in the profits from future engagements. Further, the Starbucks Corporation would not face the repercussions of failing o meet the expected tax cuts. The corporation in utilitarianism should have sought alternative means of addressing its challenges in good of the public and its customers. Tax evasion impact Some of the big corporations see tax evasion as a normal business practice. They questions regarding the tax payment, why they have to pay more than they have to when they have means to pay less. This establishment affects their operations in future accordingly as when caught it impairs their reputation extensively (Mcgee, 1998, p 78). For instance, the corporations incorporate some impractical strategies such as corporate trade mispricing to reflect accordingly in their revenues. This is a common strategy for the corporations in earning higher revenues yet paying less than expected tax ratings (Chopra, 1985, p 90). The big corporations are operating at the level of Starbucks Corporation make basic tax on profits called the corporation tax. Countries such as the UK entice such corporation to operate within their borders with the disguise of lower corporation tax rates. However, despite this exemplary and enticing offer, corporations continue to find loopholes in the business engagements and legal aspects to driving a race of parallel operations resulting in tax reduction and evasion eventually. The global competition attracts the large corporations to partake in the neoliberal economic philosophy, building the procedural operations along the lines of keeping their corporation tax at minimum. Notably, most countries including the UK gain their revenue from taxing the wealthy individuals and businesses (James, 2009, p 64). The money gained from the taxation allows the government to spend on the basic facilitations of social amenities (Bartels, 2001, p 78). However, with occurrences such as witnessed in the case of Starbucks Corporation tax evasion, the government faces challenges in meeting such vast budgets. Therefore, tax avoidance affects the procedural operation of the country in which the corporation operates. The tax evasion cases also vastly affect the reputation of the corporation and the persons responsible for the corporation. The case of Starbucks Corporation was no different as the reports of the case spread wide and fast affecting the reputation of the CEO accordingly as well as the sales of the business. Notably, the consumers of the corporation products could not fathom how the trusted corporation could act in such shady dealings. Notably, the Corporation in the years that ensued, from 2011 to 2013 continued to struggle accordingly to re-reestablish its status as a trusted corporation, after the eventual observation of the impact of the case of tax avoidance (Duska, Duska & Ragatz, 2011, p 82). The case saw the sales of the corporation dwindle accordingly despite the campaigns it engaged to contain the spread of the bad reputation of their brand name. The ethical and moral impact in this concept entails the perception that the consumers got regarding the Starbucks Corporation. The consumers and customers felt cheated from the operations of the company, considering their loyalty to the corporation. Thus, tax evasion cases extensively influenced the operations and success of the Starbucks Corporation within the period of the occurrences. Media campaign was key to propagating the anger of the protesters towards the corporation. The protesters taking to media as medium of reaching the corporation voiced their displeasure in the morality of the corporation, exemplifying that tax issues are key to the operations of any international corporation, irrespective of its capacity of operations. Notably, Starbucks Corporation had not suffered any consumer backlash since its cases of avoidance. The company after suffering the case faced a revenue fall by 3.4% as the cases proceeded. However, despite the claims of the tax impacting the corporation operations, the company spokesperson was reluctant to acknowledge so and insisted the revenues fell because they closed several non-profitable stores (Donaldson & Dunfee, 1999, p 90). This is an illustration of the continued ethical and moral aspects that reflect in the dealings of the Starbucks Corporation, as dishonesty constitutes elemental aspects of engaging in tax avoidance. Thus, it is evidential that the protests against the corporation proved right as the Corporation continued to operate at margins lower than the previous values (Schultz & Gordon, 2011, p 35). This drop resulting from the cases of tax avoidance continued to impair the company reputation accordingly. Conclusion Ethics and morality in business are key to the essential establishment of a brand name, and Starbucks Corporation never realized the essence of such until the case emerged. 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