Starbucks’ European unit pays $183m to US owner despite dip in growth

Coffee chain’s tax bill from European businesses was $3.1m

Campaigners say Starbucks is still not being transparent about its tax affairs despite several previous investigations. File photograph: iStock

Campaigners say Starbucks is still not being transparent about its tax affairs despite several previous investigations. File photograph: iStock

 

Starbucks’ European business paid $183 million (€154 million) in dividends to its United States parent company despite incurring large losses as the coffee market suffered its first dip in growth in two decades during the coronavirus pandemic.

Starbucks’ pretax profit fell almost 40 per cent to $104 million (€87.6 million) in the year to September 2020 as lockdowns forced stores to close and drastically reduced footfall on city streets, according to company calculations that aggregated the accounts of its franchise businesses across continental Europe and the Middle East.

In the UK, where Starbucks runs a mix of company-managed and -licensed stores, the company suffered a £41 million (€47.7 million) pretax loss, compared with a loss of £6.6 million (€7.7 million) in 2019. Its UK revenues fell by a third to £243.3 million (€283.2 million).

The group paid $3.1 million (€2.6 million) in tax from its European businesses but also paid a $183 million (€154 million) dividend to its US parent company, causing campaigners to say the company was still not being transparent about its tax affairs despite several previous investigations.

The dividend was not declared as paid out in its accounts because it is not required under standard accounting practices, Starbucks said.

“The UK business has always been loss-making and continues to be loss-making . . . The question is why are they running a loss-making operation in the UK and have a European arm that reports profits that are tax free?” said George Turner, executive director of TaxWatch UK.

Richard Murphy, director of Tax Research, said: “The accounts offer no clear insight as to what is going on. And that is the problem. Starbucks still needs to put all their cards face up on the table in a spirit of transparency and openness, and it is still not clear that they are.”

Seven businesses

Starbucks has seven businesses for which it reports accounts in the UK. The profit it reports for its Europe, Middle East and Africa division flows through to Starbucks Corporation in the US as a dividend, which means it is not subject to tax.

Starbucks declined to comment on the way it reports its accounts.

The company has been scrutinised several times in the past decade for its tax affairs because of its complex corporate structure, which it is in the process of simplifying. In 2012 the coffee chain came under fire from UK politicians after it was revealed it had only paid £8.6 million (€10 million) in UK corporation tax over a 14-year period. In 2017 the Financial Times reported that the company was still paying an effective tax rate of 9.4 per cent on its European business. The UK charges a 19.5 per cent corporation tax.

Starbucks has since moved its headquarters from Amsterdam to London and increased the amount it pays in UK taxes. – Copyright The Financial Times Limited 2021