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Starbucks has 'never paid German income tax'

Published: 05 Nov 2012 14:32 GMT+01:00

The company registered sales worth €117 million in Germany in 2011, but reported losses of €5.3 million, and therefore did not pay income taxes. This has been the case each year since 2002, according to a report by the Reuters news agency published in the business daily Handelsblatt and other German papers.

Sven Giegold, a German Green member of the European Parliament has reportedly said he will take up the issue of Starbucks' tax record with authorities in Bavaria, where the company's Germany subsidiary is based.

A spokesman for the Left Party said it was asking the Finance Ministry to investigate whether the coffee giant had complied with German tax rules, the Handelsblatt said.

The German Finance Ministry has declined to comment on the issue. The report says there is no evidence the company broke any tax laws in its filings.

Starbucks CEO Howard Schultz issued a statement on October 23 saying, "In every country where we do business, Starbucks adheres to both the letter and spirit of the law regarding our business practices..."

The company has said that it did not pay corporation taxes because high labour costs and rent prices made it hard to turn a profit in Germany.

The root of the problem, according to the Reuters research published in Handelsblatt and elsewhere, is that the German Starbucks subsidiary has to pay a licensing fee of six percent of the branch's profits to the headquarters in the Netherlands, and an additional fee of $25,000 for each newly opened café, causing much of the subsidiary's profits to be sent out of the country, and dramatically reducing taxable earnings in Germany.

In Britain, news that the company had paid only £8.6 million on £3.1 billion in sales over 13 years has made headlines and caused members of Parliament to initiate enquiries into the matter.

After the first German Starbucks opened 10 years ago on the Pariser Platz in Berlin, opposite the Brandenburg Gate, some 150 other branches have opened in the country, the Handelsblatt reports.

Last week, the company reported weaker sales in Germany, and fourth quarter sales in Europe, the Middle East, and Africa resulted in an operating loss of $7 million, down from a $3 million profit over the same period the year before.

In Germany, the company says it plans to win back customers with the sale of regionally popular baked goods. Starbucks also plans to open more branches in German train stations to attract customers on their way to work.

DPA/The Local/mbw

The Local (news@thelocal.de)

Your comments about this article

16:18 November 5, 2012 by ChrisRea
Licencing fees are one of the most used tricks to avoid paying taxes in the country where the incomes are made.
16:32 November 5, 2012 by gtappend
So do they pay tax on those payments in the Netherlands, or does that money somehow find its way back to the U.S. instead?
20:16 November 5, 2012 by ChrisRea
Look what Wikipedia says: "Income received by a Dutch company from a foreign branch is exempt from Dutch corporate tax provided such branch is a permanent establishment or representative." So, apparently, no profit tax is paid on those payments.
20:22 November 5, 2012 by bobmarchiano
The company has said that it did not pay corporation taxes because high labor costs and rent prices made it hard to turn a profit in Germany

Rent is high in the locations but HIGH Labor cost that is very hard to .......
00:15 November 6, 2012 by catjones
ChrisRea...it's not a 'trick'. Every foreign country doing business in germany has access to the same tax laws of germany. If germany doesn't think this is best for their bottom line, let them change their law.
07:53 November 6, 2012 by ChrisRea
Of course it is a trick, because it allows camouflaging an economic process in something else (in order to save taxes). Why do you think Netherlands was chosen for "headquarters"?

Of course other companies do the same, not only in Germany but in most of the countries, if not all. Licencing fees are the hardest to be contested by the tax authorities. If the nature of the activity does not allow it (or not in a high proportion), then management and consulting fees are the next trick. However, these are a bit more difficult to be properly documented.

Unfortunately, no solution was found to adjust the law in order to discriminate the just transactions from the other ones. Or do you know of a country that managed to do that?
08:42 November 8, 2012 by bhess
They don't bring it back to the U.S. because it would be taxed at our high corporate tax rate.

I got to say it must be hard for them to beat the baked goods in Germany. I remember getting custard danishes from a bakery there and it is still the best danish I've ever had since. Plus you guys already had good coffee. When I went back to the U.S. I had to get my coffee from a specialty shop because I had become so spoiled.
00:03 November 10, 2012 by Anny One
@bobmarchiano

Not only in Germany apparently

Politicians in the UK, Germany and France have called for investigations into the coffee company following Reuters reports into the firm's tax arrangements.

http://www.guardian.co.uk/business/2012/nov/01/starbucks-dismisses-tax-avoidance-claims
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