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We make this transcript available for your convenience and to increase the accessibility of our content. The transcript was generated by software and was slightly edited for clarity. If you are able to, we encourage you to listen to the recording.

Starbucks does a good deal of business in Oregon, probably more business in Oregon than in just about any corner of the world.

For one, the US is the largest market for the world’s largest coffee company. And in the U.S., there are more Starbucks stores per capita, per person, in Oregon than in any other state. More than in Washington state, where the company got started.  With all those lattes and espressos being sold in Oregon, you would imagine that Starbucks reaps a good amount of profits here in our state. 

So how much in profits does Starbucks make in Oregon? And how much in taxes does the company pay to the state? We actually don’t know. That information is secret.

But one thing we do know is that Starbucks uses accounting tricks to keep its profits from being taxed where they were made. According to a report that came out earlier this year, Starbucks has dodged taxes on about $1.3 billion in profits over the past decade by artificially shifting those profits to a subsidiary in Switzerland. That’s a lot of taxes that Starbucks is not paying in the places where it made its profits. Places like Oregon.

In this episode of Policy for the People, we’re looking into how big corporations like Starbucks hide their profits to avoid taxes, how this hurts us all, and how requiring big corporations to make more information public would help ensure that they pay their fair share.

Wherever Starbucks does business, it benefits immensely from the public sector, from having a healthy and educated workforce to a court system and a system of public safety that the company can count on to the streets and other public infrastructure that allows its customers to get to its stores and to buy all those cups of coffee. Massive corporations benefit more than anyone from the public sector, from the infrastructure and services that are paid for through the tax system.

And yet, it’s well known that the biggest corporations, the multinational corporations like Starbucks, routinely play games with the tax system. The exact ways they do it is usually hidden from view. They do their tax tricks under the cover of darkness. 

But in the case of Starbucks, the public caught a lucky break. An investigation by Reuters in 2012 showed that Starbucks in the United Kingdom had been shifting profits out of the UK to avoid taxation. This led to an investigation by the European Union in 2014, which brought to light Starbucks a Swiss tax scheme.

“If it wasn’t for that investigation, we wouldn’t have been able to sort of pin the case on Starbucks.” That’s Jason Ward. He’s an analyst with the Center for International Corporate Tax Accountability and Research, a network of researchers from across the world who study the tax and financial arrangements of global businesses. 

Earlier this year, Jason and his colleagues published a report showing that Starbucks continues to use its subsidiary in Switzerland to shrink its tax obligations. 

“We picked up the pieces left behind by the European Commission investigation, they compelled Starbucks to produce the filings, and financial information from the Swiss subsidiary. We’ve been able to trace that since then, through publicly available financial statements from companies in the Netherlands and in the United Kingdom, we’ve been able to trace that the levels of dividends paid out of the Swiss company continue to this date, so that the scheme hasn’t been touched.

“Since 2011, what Starbucks continues to do is purchase about 3% of global coffee production, the green coffee beans before they’re roasted, from the global South, from coffee producing countries around the world. And those sales on paper are conducted in Switzerland by a subsidiary based in Switzerland, Starbucks Coffee Trading Company S.R.L.

“And since 2011, it has marked up the price of the beans by 18% before it sells to other subsidiaries that then do the roasting and the retailing. So it’s essentially pulling 18% profit margins out of the internal supply chain and into Switzerland, where it’s parked in Swiss bank accounts, and taxed at very low rates.

“Switzerland is one of the world’s biggest tax havens. And it’s the center of the global commodity trade. So not just coffee, but all kinds of commodities are traded through Switzerland. So Starbucks presents a really crystal clear example of a much bigger problem in terms of tax havens and commodity trading altogether.

“The crazy thing about Starbucks is that this tax dodging scheme, we estimate, produces about $150 million a year in profits shifted to Switzerland, which is about $1.3 billion over the last decade. So this is money taken out of the internal supply chain and parked at very low tax rates in Switzerland and held there or shifted to some other place like the Cayman Islands, where they also have a subsidiary.

“Starbucks’ excuse for this tax scheme is that it funds its “ethical trading program.” This is supposedly ethically sourced fair trading coffee and consumers in Oregon and across the world are paying a premium price because they’re being told by Starbucks that this is Fairtrade, ethically sourced.

“And it’s not. There are lawsuits happening in U.S. federal courts now for false advertising, because there’s widespread evidence of labor abuses, child labor, included in Starbucks coffee supply chains in countries around the world, in Mexico, in Brazil, and elsewhere. Their excuse of this markup is that it funds this program. And we’ve been looking at their coffee farmer support centers in coffee producing countries. And the amount of money that is spent by Starbucks on those programs is pocket fluff It doesn’t stack up to $150 million. It doesn’t come close. It’s really a few pennies.”

So to sum it up, Starbucks uses a subsidiary in Switzerland to buy green coffee beans. It then jacks up the price of the beans when it sells them to other Starbucks subsidiaries, the ones that actually sell coffee to consumers in Oregon and other places. Through this accounting trick, Starbucks is able to shift its profits to Switzerland. And what does this subsidiary in Switzerland look like, the one that on paper generates so much profits for Starbucks?

“It’s essentially a letter box. We know that it has directors. With allies in Switzerland and some of the global trade union federations, we actually did a demonstration outside of its office. And there’s really not an office. It’s a letter box. This canton in Switzerland, the canton of Vaud, is a global coffee commodity trading center, but really none of the beans ever end up there.

“So I’ll give you a super clear example. Starbucks, outside of the United States, has its second largest market in China. And China is the only country where Starbucks sources coffee, roasts coffee and retails coffee. Yet on paper, those coffee beans are traded by this Swiss subsidiary. Of course, these beans don’t climb up the Alps. They don’t go there physically, only on paper. This supply chain that never leaves China is traded via Switzerland.” 

And what is the impact of this tax avoidance scheme by Starbucks? How does it affect the people of Oregon? 

“The impact of this in Oregon is that the profits of all of those Starbucks stores that are selling their pumpkin spice lattes, or whatever it is that they’re producing, is 18% less than it would be if they had actually bought the beans at a reasonable, fair price. It’s reducing the profit that should be taxed in Oregon through that scheme. So it has a tremendous effect on reducing tax levels in Oregon. You know, I could understand a 1%, 2% even maybe 3% markup, but 18% is just outrageous. There’s no value added by that purchase. It’s purely a scheme to shift profits and to be able to report those profits in Switzerland rather than from the retail outlets in Oregon.

“So that shift of profits is directly reducing the taxable income from the sales to consumers, where obviously that’s where the value is added, where the money is genuinely made. But this artificial construct puts the money into Swiss bank accounts where it’s out of reach from state and federal tax authorities in the United States.”

Aggressive corporate tax avoidance helps explain why in Oregon, corporate income taxes have failed to keep up with corporate profits, as shown in a report recently published by the Oregon Center for Public Policy. The organization where I work from 1980 to 2020 for national corporate profits, grew nearly twice as fast as corporate income tax payments to Oregon. In other words, corporate income tax payments to Oregon have not gone up anywhere near the level as the rise in corporate profits. 

“This is a huge percentage of global trade that goes from wealthy individuals and multinational corporations into tax havens around the world. And it is stealing public funding that should be there for infrastructure, schools, health care, social services. And, we’re forced into austerity because corporations aren’t paying what they should.

“So here we have a situation where the largest companies in the world are paying nothing in state taxes in the United States. And small mom and pop businesses, your beauty shops and your car auto repair people, are paying full rate because they don’t have the ability to open a Swiss bank account or hire a big four consultant to advise them on how to shift their profits offshore so they’re subject to the full rate, whereas the largest corporations are able to completely avoid their obligations to pay for the services that they’re using and that they benefit from.”

Starbucks is far from alone when it comes to using accounting tricks and foreign tax havens to avoid paying their fair share of taxes. This is how Jason Ward describes it:

“It’s commonplace. I’d say it’s the standard practice for all large multinationals, particularly US multinational companies, who tend to be the most aggressive. And the sectors that are pushing the limits to the extreme are big pharma and the IT companies. They all use these schemes in some way. But you’ll see these schemes around companies like McDonald’s as well. You’d be surprised at how much intellectual property there is in a Big Mac. So it is standard practice, absolutely standard practice, for all large multinationals to use these kinds of tricks to artificially shift profits from where they’re genuinely made, from where consumers are buying their product goods or services, to where they are taxed the least, or in some cases really not taxed at all.

As Jason mentioned, one of the sectors that pushes the extreme when it comes to tax avoidance is big pharma. In fact, one of the largest drug companies in the world, Pfizer, has a long history of playing games with the tax system.

“Pfizer is one of the companies that’s been in the news, that’s been in the crosshairs of policymakers, for about 15 to 20 years.” That’s Spandan Marasini, a data analyst with the Institute on Taxation and Economic Policy, a nonprofit, nonpartisan organization that studies tax policy.

“And so we’ve gotten tidbits about their tax payments, non-tax payments, over the years. So in 2004, The U.S. government passed the American Jobs Creation Act. And a part of that act was a repatriation holiday for corporations. So what does that mean? So it basically means that if I’m a multinational company, I have operations all around the world. And at that time, the U.S. federal tax rate was 35% on corporate profits. So if I have operations in a tax haven, I have no incentive to bring those earnings back into the U.S., where it’s going to be taxed at 35%.

“So as part of the act to create jobs in the United States, they told companies that, okay, instead of paying 35%, you can pay 5%, on these earnings. And Pfizer took its opportunity and brought back the highest amount. They brought back $35 billion. So effectively giving them a $10 billion tax break. They paid $2 billion in taxes, where if they had to pay 35%, it would have been $12 billion.

“And this came from a 2011 Senate Subcommittee on Investigations report which analyzed this repatriation tax holiday. And they found that actually, since the passing of the holiday, Pfizer on net actually fired more people than hired for people, a few thousand. So it didn’t really create jobs.

“And then we jumped to 2017. And so in 2017 we see the Tax Cuts and Jobs Act passed, where again we see another repatriation tax. This time it’s mandatory and the companies aren’t required to bring those profits from abroad to the U.S.. They just have to pay the taxes on them. Right. And again, companies pay less than half the statutory tax rate, which is now 21%. So they pay between 8 to 11%. And so Pfizer pays the third highest amount, from our tallies, $13 billion, in this repatriation tax. And if they paid anywhere from 8 to 11%, that means those earnings were probably over $100 billion.

“Moving on to the present day, what we see in Pfizer’s financials is a very interesting and confusing story. So over the last ten years, Pfizer paid only a quarter of its taxes in the U.S., but almost 60% of its revenue comes from domestic operations. And even more bewildering, over that same span, they’ve reported a total loss of $15 billion in the U.S.. But profits of $150 billion, internationally. You look at that and you say, how do you have so much of your operations here? And we know how expensive drug prices are and how much the medical system in the United States actually benefits these pharmaceutical companies. And you wonder why? You wonder what’s going on.

“And to even make it more interesting, in 2024, Pfizer liste like 88 subsidiaries in Delaware and also just a bunch in Luxembourg, the Netherlands, Ireland. And it’s headquartered in New York, but it only has two subsidiaries in New York. So why? Why does the company have so many subsidiaries and all these tax havens?

“So yeah, Pfizer has been very interesting, but also frustrating. because we don’t know. We’re getting close to an answer, it seems, from all these little tidbits. But they’re not obligated to tell us anything really.”

As Spandan explains, all that secrecy comes at a cost, even to the owners of the company, the shareholders.

“It’s overwhelmingly important for investors to know whether or not a company is making its profits through corporate scheming or accounting schemes via tax evasion, because that’s just not a sustainable form of running a business, of running economy. And as investors, you’d want to know what you’re putting your money into. A lot of people in the United States have their savings in many of these multinational companies. If you have a 401K or retirement account, you want to know what we’re putting your life savings into. You know, if a company is making money by using dodgy accounting practices, we should know, even if a company is legally – and that’s how it works – avoiding taxes. 

“That doesn’t come at a small cost, even for the companies themselves. Like, if companies are allocating their financial capital towards creating very intricate tax avoidance mechanisms rather than actually doing productive activities, at least by knowing what they’re up to we get the chance to decide whether or not we want to support these practices.”

Not long ago, there were high hopes that we were about to see a big step forward in terms of corporate tax transparency, thanks to a new accounting rule set by the Financial Accounting Standards Board, FASB.

“FASB exists for investors, researchers, and the general public, for them to be able to have an apples to apples way of comparing company financials. You want to be able to come up with the same data point for multiple companies. And also it exists for clarity. It tells companies what they have to report in their financial statements. 

“And it was created in 1973, but it really came to relevance and importance after Enron. Because, you know, Enron was using holes in the accounting standards at the time to hide its toxic assets from its investors.

“And it, you know, after the fact it came out that Enron was in cahoots with the accounting firms and they basically had no effective guardrails. And so in 2002, we get the Sarbanes Oxley Act, where FASB is really beefed up and they really start becoming more efficient. They start really creating a lot of these accounting standards updates, so that people can avoid something like an Enron.”

As Spandan explains, the Securities and Exchange Commission entrustS FASB to set accounting standards for publicly traded corporations, companies listed in the Dow, Nasdaq and such. And FASB issued a rule that those companies would have to start making more tax information public, including where they pay taxes.

As Spandan wrote in a recent article, “These updated standards would require companies like Pfizer to provide in-depth, country by country breakdowns of their taxes, giving a peek into the potential tax dodging tactics of multinational enterprises.”

So without a doubt, this new FASB rule set to take effect constitutes a big step forward for corporate tax transparency, a real victory for the public.

But that rule may actually never see the light of day. The Republican-controlled Congress is poised to kill it. As we’re recording this, there’s a government shutdown underway. The U.S. House of Representatives passed the spending bill, but it failed to clear the Senate. Tucked deep inside that spending bill is a directive to the Securities and Exchange Commission to defund FASB unless it retracts the tax transparency rule. 

“FASB is under the SEC, the Securities and Exchange Commission, and Congress funds the SEC, and by virtue of that, Congress funds FASB as well. What Congress has said is, if FASB enforces this accounting standards update, we’re not going to provide funding for them. So either you take this standards update out or no money for FASB, no money for the accounting board for a lot of the world’s capital. I’m quite surprised that this never received the amount of scrutiny it deserved. It seems like it’s going to get passed. And so we most likely we’ll see the end of this update.”

Unless the language killing this advancement in corporate tax transparency is removed in whatever spending bill Congress ultimately passes, it will be business as usual, at least at the federal level. Starbucks, Pfizer and all the other corporate giants will continue to game the system, to shift their profits from the places where they were earned to a place like Switzerland or some other foreign tax haven.

“It seems quite obvious that this is in the public interest. This issue is a very bipartisan issue. It’s something that everyone agrees on. Congress in this instance did not listen to the public and public demands, for corporations to just tell us more about their taxes, let alone even pay their fair share. And you’re wondering why? Why? This doesn’t make any sense.”

The move to kill the new corporate tax disclosure rule by threatening to defund FASB is part of a larger pattern by the Trump administration, according to Jason.

“The Trump administration has essentially become a protector of multinational tax avoiders, This is not about making U.S. companies pay tax in the U.S. This is a protection racket to allow U.S. multinationals to dodge their tax liabilities, both in the U.S. and internationally. And the people that Trump has put in charge of U.S. tax policy have been the ones advising corporations for decades on just how to do this.

“So there’s no intent there to actually make U.S. companies pay what they should, either in the U.S. or internationally. In fact, it’s essentially a protection racket to allow them to continue to abuse the international system.”

But even if the situation at the federal level looks bleak, there’s hope at the state level for something better.

“There’s actually quite a lot that a state can do. One is just general transparency and requiring disclosure of what taxes are paid by which corporations or not paid by which corporations. So just putting that information in the public domain has huge potential to draw attention and focus to further solutions.”

Big multinational corporations will scream and yell that the world is going to fall apart if more information on their profits and taxes is made public. But that’s demonstrably not true. Australia, where Jason lives, has had much stronger transparency laws in place for over a decade.

“We’ve had a high level of disclose in Australia for 11 years now. So with a company with over 100 million revenue, I can go and tell you how much tax they’ve paid or not paid over the last 11 years. This has really driven debates and reforms that have raised substantial amounts of tax revenue to fund our public services here.”

And guess what? The world hasn’t fallen apart. Despite having to disclose more information on their profits and taxes. Big multinational corporations continue to do business in Australia, including Starbucks. And now Australia has gone even further, Jason explains.

“Last year we passed legislation for what is called public country by country reporting. So any multinational or any corporation that operates in Australia with over $10 million Australian dollars in revenue will have to report on the number of employees, its total income-related party transactions, and tax paid in Australia as well as 40 jurisdictions around the world that are widely regarded as tax havens. The European Union has a similar, country by country reporting requirement now. But Australia is far stronger, in terms of what is required to be reported. And just a week or two ago, the biggest corporate lobby groups in the U.S. have been weighing in on the U.S. Treasury to try to get the Trump administration to threaten Australia. I say that because that’s how threatened they are by this transparency and how important it is to have that data out there. These companies are scared that when their sordid, shady tax dealings are out in the open, that people are going to be upset about it and take action to close down loopholes that are currently abused.”

So as the case of Australia shows, more transparency can help curb corporate tax avoidance. It makes it harder for corporations to play games with the tax system when they know they will have to make their financial information public.

There’s a saying that sunlight is the best disinfectant. That certainly appears to be the case when it comes to corporate tax avoidance.

That’s it for today’s show.

I want to thank Jason Ward and Spandan Marasini for sharing their insights into how it is that big corporations hide their profits and what we can do to address the problem.

And as always, thank you for listening to Policy for the People. We will see you next time.