Starbucks received a tax credit worth £4.4m in the UK because of losses in 2020, despite the coffee chain’s US parent company making a profit during the same period of $1.2bn (£870m).
The loss comes after a year in which Starbucks was forced by the pandemic to temporarily close all of its 935 UK shops, leading to a steep fall in revenues.
However, the revelation that a global American corporation is claiming tax credits from the British government will add impetus to a planned international agreement on reforms designed to prevent profit shifting by multinationals.
Starbucks uses a complex corporate structure in Europe, and it has faced heavy criticism for its lack of transparency from tax campaigners. Its UK arm made cumulative losses after tax of well over £100m between 2010 and 2020, according to Guardian analysis of its accounts. In only four out of 11 years did it report a profit, but tax experts say it is unclear whether they are a true reflection of the business.
The UK arm of Starbucks reported that it lost £41m during the year to the end of September 2020, according to accounts filed at Companies House. The UK accounts show a “gross profit” of £32m for the year, but then count unspecified “administrative expenses” of £70m.
The loss translated into a “negative tax charge” of £4.4m, Starbucks said, meaning it can claim back taxes previously paid on profits. Starbucks’s UK arm paid £1.9m in UK corporation tax in the 2019 tax year, and £4m in 2018.
The company said the losses were down to lockdown restrictions. Starbucks was forced to suspend trading, although it did not furlough any of its 4,300 workers or opt to use any government support. UK revenues for the year dropped to £243m, down almost a third on the year before.
Nation states are working on way to tax multinational companies more effectively. Leaders of the G7 group of wealthy economies, including the UK and US, earlier this month agreed a framework for a deal that would mean companies pay a percentage of their profits in markets where they make large sales, as well as setting an unprecedented global minimum corporation tax.
Starbucks Corporation, the US parent company, made profits before tax of $1.16bn (£830m) in the year to 27 September 2020, on sales of $23.5bn.
Starbucks’s European business paid a dividend worth $183m to the US parent company. Dividends between companies in the same group are not subject to tax.
UK coffee shops are run by Starbucks Coffee Company (UK) Limited, but it pays royalties to Starbucks EMEA Limited, another UK registered company, which collects earnings from subsidiaries across Europe, the Middle East and Africa.
A Starbucks spokesperson said: “Starbucks Coffee Company (UK) Ltd did not pay any dividends, as the accounts make clear. There are royalties paid by all subsidiaries in the EMEA region to EMEA Ltd for use of the brand. EMEA Ltd also paid no dividends.”
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