Starbucks (NASDAQ:SBUX) announced this week that it will move its European headquarters to the United Kingdom from the Netherlands, a decision that will result in the coffee chain paying more taxes in the U.K. Though the company has maintained that the switch is purposed to allow Starbucks executives to get closer to Britain, the company’s biggest market in Europe, it also isn’t going unnoticed that the relocation has come after Starbucks suffered significant criticism over its low tax payments in Britain last year.
According to CNN, after opening its first stores in the United Kingdom in 1998, Starbucks now operates more than 2,000 in thirty-five countries, and the U.K. accounts for more than half of those stores. Thus, Britain is undeniably the chain’s largest and fastest growing market in the region, providing the company’s executives with a justification for moving its headquarters closer, but many still aren’t buying that rationalization, as Starbucks was part of a recent public backlash that accused several major companies of exploiting tax loopholes in the U.K., and it is suspected that Starbucks is now trying to rectify its image in the country.
As highlighted by Reuters, last year, a panel of UK lawmakers urged the government to conduct of review of Britain’s corporate income tax regime to confront what it believed was a “serious problem of avoidance.” Along with Starbucks, the U.K. parliamentary committee accused companies such as Google (NASDAQ:GOOG) and Apple (NASDAQ:AAPL) of shifting profits obtained in the U.K. offshore to avoid taxes, and after the parliamentary investigation in 2012, many believed that Starbucks’s reputation in the U.K. was permanently damaged, as many boycotts were orchestrated, and more and more loyal consumers caught on to the fact that their coffee source could be avoiding taxes.
Starbucks has tried to put those issues in the past, paying its first U.K. corporate tax payment since 2008 last year, as highlighted by CNN, but now it is clear that the Seattle-based coffee giant is taking a different approach to improving its image in the U.K. Starbucks is moving its headquarters and showing a willingness to pay more taxes, even though the company’s executives maintained that Starbucks’s bill will remain “relatively neutral.”
According to Reuters, with the move, Starbucks senior executives will transfer to the company’s head office in Chiswick, west London, while manufacturing jobs will remain in Holland. In addition, Amsterdam will continue to roast and distribute all of Starbucks coffee for the whole of Europe.
Consumers shouldn’t expect to see elevated prices in the U.K., because as highlighted by Reuters, CEO Howard Schultz said in March, “I want to resist raising prices in this environment.” However, it is possible that Starbucks may need to reconsider its pricing strategy in the U.K., because now not only is it going to be paying more money in taxes, its operation costs are also going up, and the higher costs for milk and coffee aren’t helping its cause.
Nonetheless, Starbucks won’t even have to worry about those costs of operation if consumers in the U.K. continue to view the world’s largest coffee chain with a critical eye, so now the company is hoping that its relocation will both win it back customers, and also the respect of U.K. lawmakers.