Starbucks brews up first UK profits in 17 years

Starbucks Red Cups

Starbucks has made a small profit in the UK for the first time since the world’s biggest coffee bar chain brewed its first drink in Britain 17 years ago.

The UK business, which runs or franchises 791 coffee shops, made a pretax profit of £1.05m last year, Starbucks said.

Persistent losses in previous years had seen Starbucks UK accused of paying millions in royalties and interest from Britain to other Starbucks companies overseas in order to lower its British tax bill.

A Reuters investigation in 2012 highlighted how Starbucks UK had booked cumulative sales of more than £3bn since opening in Britain but had paid only £8.6m in corporation tax over the same period.

The revelation led to Starbucks executives being summoned before parliament and to calls for a consumer boycott. Responding to widespread anger, then UK boss, Kris Engskov, pledged to waive tax deductions for royalties and interest during 2013 and 2014.

That “deductions holiday” period expired at the start of last month. Starbucks had promised this would generate additional tax of £20m for HMRC. On Tuesday it declined to say publicly whether or how that commitment had been met, but privately claimed it had been satisfied – though it refused to give further details.

The group declined to comment on whether the controversial tax deductions had resumed.

In previous years, controversial royalty payments depressed taxable profits in the UK and flowed into a complex web of Starbucks companies centred in the Netherlands. There the group’s aggressive tax structure ensured income was taxed only at a very low rate. That Dutch structure is now the subject of an investigation by the competition officials at the European commission.

Investigators suspect the Dutch tax authorities should never have given approval to Starbucks’ structure because the tax consequences are so generous as to amount to illegal state aid, though they have yet to reach a final conclusion.

The US group’s statement on Tuesday selected only highlights from the full accounts for its UK business, which are yet to be filed with Companies House.

In the statement, the managing director, Mark Fox, described breaking into profit as “an important milestone for the business” after a loss of £20.5m for the previous year. Gross profit for the year to 28 September 2014 rose 24% to £98.8m. No sales figures were given.

Taxed at the statutory rate of 22%, 2014 profits would have generated about £232,000 for HMRC. But Starbucks indicated its tax charge will in fact be £12m. The group refused to disclose a breakdown of the factors contributing to this tax liability, only one of which will have been the self-imposed tax deduction holiday.

That means it remains difficult to see how close Starbucks came to its 2012 promise of a supplementary tax payment to HMRC of £20m over two years.

Powered by Guardian.co.ukThis article was written by Simon Bowers, for The Guardian on Wednesday 4th February 2015 18.50 Europe/London

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