Starbucks suffers first UK sales fall after tax row
Coffee chain’s revenues slide 3.4 per cent after boycotts and criticism of offshoring
Thursday 24 April 2014
Starbucks’ sales have tumbled in Britain in the wake of its tax-avoidance row. The coffee shop chain also came under fresh attack yesterday as accounts showed it had kept its controversial offshore structure that wipes out profits in the UK.
The company said revenues fell by 3.4 per cent to £399.4m in the year to September from £413.4m a year earlier.
Starbucks insisted it had suffered no consumer backlash since its tax avoidance emerged in 2012. It was revealed that it paid just £8m in tax on £3bn of UK sales since 1998. A spokesman maintained sales had fallen only because it closed “a number of unprofitable stores”.
He said: “The UK is our fastest-growing market in Europe. Gross profit is up 13 per cent and operating margin is up more than 22 per cent. The loss before tax fell by more than 30 per cent. We are on schedule to open 100 new stores this year and expect the business to continue to grow.”
However, the UK business still made a pre-tax loss of £20.4m. That appeared to be the result of Starbucks’ continued policy of funnelling revenues offshore, primarily to the Netherlands, by charging the British operation royalties to use the Starbucks brand and its coffee beans.
Margaret Hodge, the Labour MP who chairs the Commons Public Accounts Committee, which has questioned executives from Starbucks, Google and Amazon about offshore tax avoidance, said it “beggars belief” that Starbucks could keep making a loss.
“If it is right that the UK is the best market in Europe and it is the most profitable, how on earth can it continue to file losses?” she asked.
Starbucks’ accounts showed that it did pay £3.4m in corporation tax last year, up from nothing a year earlier, but the company confirmed that this was a voluntary decision.
A year ago, the coffee giant said it would pay £20m to UK tax authorities over two years, explaining that it “would not claim deductions for the royalties it pays, for the coffee it purchases and for interest paid on intercompany loans”, and that it “would not claim capital allowance deductions nor carry-forward losses”.
It is understood that the £3.4m is the first part of that £20m contribution, which was widely seen as an attempt to defuse the political and consumer storm over its tax avoidance. Last week, Starbucks committed to move its European headquarters from the Netherlands to Britain in what looked like another move to assuage its critics.
Ms Hodge said: “The contradication no ordinary person can understand is that how, on the one hand, they talk about the importance of the UK coffee market and that is why they are moving their European HQ to the UK, and yet year after year they file losses.”
Starbucks will possibly pay more UK tax if it bases its European operations in Britain.
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