Could a Storm be Brewing in the Tea Pot for Starbucks

Could a Storm be Brewing in the Tea Pot for Starbucks

Business Secretary Vince Cable has condemned corporate tax avoidance as "completely unacceptable", saying there are "appalling stories of abuse". He told the BBC's Andrew Marr Show UK authorities should do more to stop it. However, he said that tackling the issue required international agreement as well as domestic action. His comments came after executives from Starbucks, Google and Amazon were grilled by MPs, although the firms say they operate within the tax rules. The executives were questioned earlier this month by the Public Accounts Committee about how they used favourable European tax jurisdictions for their UK businesses. Starbucks, for example, has made a taxable profit only once in its 15 years of operating in the UK. As a consequence, the company is thought to have paid just £8.6m in corporation tax over the period. During the hearing with MPs, Starbucks admitted the Dutch government had granted a special tax deal on its European headquarters, which receives royalty payments from its UK business.

 

'Intensive investigation'

Mr Cable told Andrew Marr: "The best off in society have got to contribute more, and that includes companies."

Amazon's Andrew Cecil was condemned by MPs for failing to answer questions

He acknowledged that smaller companies, many of which face competitive pressures from the major firms, will be angered by the situation.

"

There's nothing more galling to small and medium-sized enterprises when they are paying (tax), and others are dodging it," Mr Cable said. "Our own tax authorities have got to be very tough on things like royalty payments, which is where a lot of the subterfuge takes place."

However, he said that finding a solution was difficult, especially as the UK had to make itself attractive to inward investors. "The big question is whether you can get wider (international) agreement," he said.

As companies are using favourable tax jurisdictions overseas there needs to "a combination of action at the international level as well as beef up our own capacity to deal with it".

Mr Cable said: "It is quite difficult to drill down to what the problems are. Starbucks claims they are actually making losses in the UK. I don't know whether they are not but you would need some pretty intensive investigation by the Inland Revenue to establish what exactly is going on, whether their transfer prices and their royalties are being fiddled or not."

All the companies under fire over the amount of corporation tax paid said that they operated within the tax rules and regulations and have done nothing wrong.

 Right Click Image to open in a new page

Technically according to Elliot wave analysis we are long as Price confirms also Starbucks is gaining momentum with solid results in fiscal 2012; regular product innovations like the recently launched at-home coffee machine, Verismo; and great strategic deals like La Boulange, Evolution Fresh and now Teavana. Looking for new growth avenues beyond coffee, Starbucks Corporation (SBUX) has entered into a definitive agreement to acquire Atlanta-based Teavana Holdings, Inc. (TEA), a specialty retailer of tea for approximately $620 million in cash.

Teavana operates through 300 mall-based stores, which Starbucks plans to expand as well as establish new stand-alone Teavana neighborhood stores domestically as well as internationally. Moreover, Starbucks plans to open tea bars (which will make customized tea beverages) inside these stores, which presently sell only loose-leaf teas and related merchandise.

We believe that the coming together of Starbucks and Teavana provides the former a global opportunity to create a unique retail experience in the $40 billion tea category. Starbucks claims that tea is the world’s second largest beverage category with huge scope for innovation, which it plans to exploit. Management stressed though that the push into tea does not signal a slowdown in its core coffee business.

The acquisition is complementary with Starbucks’ already existing core tea business of Tazo tea. Starbucks sells Tazo tea in stores as well as across foodservice channels. Over time, Starbucks plans to create a two-tiered business where both the Tazo and Teavana branded products will co-exist.

Starbucks is constantly on the lookout for new businesses, which complement its core coffee offerings. Six months ago, Starbucks acquired bakery chain La Boulange and a year back it bought Evolution Fresh juice stores to expand its footprint beyond coffee. Teavana is another step in that direction.