Tax Anti-avoidance Through Transfer Pricing: The Case of Starbucks U.K.

This paper examines the case of Starbucks’ UK branch, which became subject to massive public criticism over alleged tax avoidance. Despite Starbucks arguing that its transfer pricing practices were in full compliance with regulatory requirements, public pressure for higher corporate tax payments led Starbucks to increase its UK tax payment on transfer pricing income beyond regulatory requirements. This case study suggests that MNE tax behavior on international transfer pricing is not strictly a matter of compliance with formal tax regulation. We demonstrate the way an MNE attempts to re-establish its ‘corporate social license’ with technically legitimate arguments of appropriate transfer pricing and, when such arguments fail to moderate social pressures, an MNE may experiment with voluntary responses. The case implies that MNEs can no longer treat transfer pricing as a technical regulation-driven discipline to be dealt with by accounting and tax experts. Instead, MNEs face the task of establishing a complex fit with their environment beyond the typical stakeholders with transfer pricing, i.e. tax authorities. These include government officials, tax activists, and consumers who voice their dissatisfaction with MNE corporate tax results in the public domain.