The disparity in its turnover and what it pays in UK corporation tax has made Starbucks the latest US company to come under the spotlight for its negligible contribution to Her Majesty’s Revenues & Customs.
Its (Euronext: ALITS.NX - news) nearest UK rival, Costa, owned by Whitbread , had a similar amount of turnover, with £377m of sales in the year ending March 3 2011. But Costa’s tax bill came to £15m - 30.5pc of its profits.
Starbucks’ UK annual results for the year ending October 2, 2011, show the company made a £32.9m loss, which is why it is not liable for tax. However, there is very little detail in why its UK operations have spent almost a decade in the red.
According to the latest filing at Companies House, Starbucks “cost of sales” was £319m, including £124m of staff costs, an undisclosed amount of money paid in rent, and an £8.9m tax credit from 2010. Starbucks was left with a gross profit of £78.4m, against which £107.2m of “administrative expenses” were charged. The result was an operating loss of £28.8m and a loss before tax of £32.9m.
Meanwhile, Costa had £101m of sales costs against its £377m of 2011 revenues and administrative expenses of £36.3m. Its operating costs were £49.3m and its taxable profits stood at £49.7m.
Starbucks is a multinational business and has a highly complex financial structure. Aside from the parent group’s operations in the US, Starbucks also has a European HQ in Amsterdam, and a coffee bean subsidiary in Switzerland.
Starbucks UK also pays its Seattle parent 6pc in royalty fees, which is considered very high in the industry, as Starbucks is charging its wholly-owned UK division more than what most companies charge franchises.
However, in a statement, Starbucks insisted it had “paid and will continue to pay [its] fair share of taxes in full compliance with all UK tax laws, as [it] always has.”
The company went on to say that in the eyes of regulators, Starbucks was a “good tax payer” which behaved in a moral way that balanced profit with a social conscience.
In the last year, both corporations and individuals have come under increased scrutiny following a jump in the amount of tax avoidance schemes that have lost the government billions in tax revenues.
HMRC said that companies like Starbucks were constantly “discussed” but that just because there was a high turnover it did not mean the company was liable for Tax in the UK.