- Starbucks booked $1.3 billion in profit in a Swiss subsidiary over a decade, a new report says.
- The move appeared to reduce Starbucks’ tax bill in other countries.
- It’s the latest example of companies using tax havens to avoid tax rates in the US and elsewhere.
A little-known Starbucks subsidiary in Switzerland appears to have played a big role in how much the coffee chain paid over the last decade in taxes, according to a new report.
On paper, Starbucks Coffee Trading Company, or SCTC, based in the Swiss Canton of Vaud, is responsible for sourcing unroasted coffee from countries like Colombia and Rwanda before it’s used in beverages at Starbucks’ cafés. It also oversees Starbucks’ Coffee and Farmer Equity Practices program for ethical coffee sourcing.
According to a report released Saturday by the Centre for International Corporate Tax Accountability and Research, or CICTAR, there’s also evidence that since 2015, the subsidiary has helped shift about $1.3 billion in Starbucks profits away from other countries where they would have been subject to higher tax rates.
The chain is hardly the only major company that books profits outside the United States, and the report’s authors found no evidence that the company was doing anything illegal. But Starbucks’ reputation for being conscious of its role in society contrasts with its use of tax loopholes, said Jason Ward, principal analyst at Australia-based CICTAR. The group is funded by trade unions as well as trusts and foundations.
“Starbucks is different in that it really does bank on its image of social responsibility,” Ward told Business Insider.
Starbucks uses Switzerland-based SCTC to book the cost of the unroasted coffee beans, even though the beans don’t appear to move through Switzerland, according to the report.
SCTC “then sells the exact same green coffee beans at a higher price to other entities in the Starbucks corporate structure,” the report says. That markup was about 3% between 2005 and 2010, then rose to 18% between 2011 and 2014, CICTAR’s report says.
CICTAR could not find “any significant change in business practices or underlying costs” that would justify the jump in profits, the report says.
“It’s not like they’re roasting coffee or researching the different types of beans or anything,” Ward said. “There’s nothing like that going on there.”
In Switzerland, profits from those markups are taxed at “a significantly lower tax rate” than if they had been booked in the United States or other countries, according to the report.
While the exact tax rate that Starbucks pays in Switzerland isn’t publicly known, US companies paid an average rate of 3.9% in the country, according to an analysis of IRS data by the Institute on Taxation and Economic Policy, or ITEP. The US corporate tax rate is 21%.
More recently, between 2015 and 2021, SCTC has paid between $125 million and $150 million in dividends annually to another Starbucks subsidiary, Netherlands-based Starbucks Coffee EMEA B.V., according to the report. These payments do not appear to be taxed either upon leaving Switzerland or upon entering the Netherlands.
The report looked at financial filings for Starbucks subsidiaries around Europe to trace profits booked at SCTC.
In a response that CICTAR included on page 4 of the report, a Starbucks spokesperson said that the report’s claims “fail to accurately reflect our business model and how different parts of our business contribute to the company’s success.”
“Starbucks pays appropriate and correct levels of tax in all jurisdictions in which it operates and proactively works with tax authorities to inform them of its business model and related tax implications,” the spokesperson said.
A Starbucks spokesperson told BI that the company “is in full compliance with tax laws around the world” and had an effective global tax rate of about 24% last year. SCTC provides “high-quality coffee to meet our global demand” and includes farmer support centers in coffee-growing areas of the world.
“Switzerland has been a global hub for coffee trading for decades and SCTC is based there to help us access the world’s best coffee trading talent,” the spokesperson said.
Starbucks isn’t the only company that looks abroad to minimize its tax obligations. A 2021 report from CICTAR looked at Uber’s use of shell companies in the Netherlands to limit its tax bill, for instance.
Large companies and wealthy individuals store money in a variety of tax-haven countries, such as the Cayman Islands, since they charge less in taxes than their home countries — or none at all.
CICTAR’s findings on Starbucks aren’t surprising, said Matthew Gardner, senior fellow at ITEP.
“This is a thing that every company or every industry, companies in every industry that have lots of intangible assets are doing right now,” he told BI.
Companies storing profits in tax havens — and the US government’s responses to the strategy — goes back decades, he said.
A 2004 tax holiday, for example, allowed corporations to bring profits to the United States from overseas at a much-reduced tax rate. The Tax Cuts and Jobs Act of 2017, passed during President Donald Trump’s first term, also contained provisions to bring more corporate profits back to the United States.
But many companies have continued using offshore tax havens, Gardner said. An ITEP analysis of IRS data from 2020 found that American-owned companies reported $390 billion in profits across 15 likely tax havens, including the Cayman Islands, Ireland, and Switzerland.
Large companies’ tax avoidance ultimately increases the tax burden on other taxpayers, including individuals and small businesses, Gardner said. It can also lead governments to slash spending and cut programs, he said.
“Every way in which the revenue loss from these offshore profits can be paid for hurts the rest of us,” he said.
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