Starbucks reports UK loss, pays no tax for 2012

LONDON, June 28 Fri Jun 28, 2013 2:24pm EDT

LONDON, June 28 (Reuters) - Starbucks, whose thin tax payments in Britain provoked a backlash against corporate tax avoidance when revealed by Reuters, paid no tax for the year to Sept. 30, 2012.

The coffee giant's main UK subsidiary reported its 15th straight annual loss at its UK stores in accounts filed on Friday.

Reuters revealed in October that Starbucks reported consistent UK losses while telling investors the British unit was profitable and promoting managers of the unit within the group.

Friday's accounts showed a UK loss of 30 million pounds ($46 million), down from the 32 million pounds loss it reported for the previous year, helped by a 4 percent rise in turnover to 413 million pounds.

The company cited challenging economic conditions and a competitive UK coffee market, although the accounts show profits were also undermined by a royalty for the use of the Starbucks brand of 26 million pounds.

This is paid to an affiliate in the Netherlands, where Starbucks has negotiated what it said was a very low tax rate.

The UK unit also paid 2 million pounds in interest to affiliated companies, the accounts showed.

Following widespread criticism from politicians and the picketing of stores, Starbucks said it would pay or pre-pay around 10 million pounds a year in taxes in 2013 and 2014.

The company said it would not take tax deductions for certain intercompany payments such as the royalty fee, interest payments and the 25 percent mark up on coffee beans that is paid to a Swiss-based Starbucks coffee purchasing unit.

Starbucks recently paid 5 million pounds to the UK tax authority as the first instalment of its 2013 tax bill, British media reported earlier this month.

Starbucks declined immediate comment.

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Comments (4)
It should be pointed out that the focus on the profits in the UK accounts is quite misleading without consulting the rest of the accounts, the tax reconciliation note in particular.

From 2003, Starbucks’ trade started to move into taxable profit, even though the accounting profit continued to decline – this is the year when royalty payments commenced.

Royalty payments probably relate to the genuine economic activity attached to the roasting plant – the royalties were not paid until 2003 when the Dutch roasting plant commenced operation and the UK-based roasting plant was closed down. It would be absurd to suggest that the costs attached to the roasting plant should not recognised and it appears that arms-length licensees paid a royalty for this genuine economic activity.

Troy Alstead said at the Public Accounts Committee Starbucks’ that intra-group transactions were benchmarked on existing arms-length transactions. Broadly speaking, this is what anti-avoidance transfer pricing rules aims to impose. Starbucks appear to be complying with the intention of the law, not avoiding it.

There certainly is no evidence to suggest that the royalty payment is unwarranted. It is just a matter of quantifying it and Starbucks appear to have readily agreed an adjustment when challenged by HMRC.

They also stated at the PAC hearing that the loan interest goes to the US and cannot possibly save the group any tax.

http://bensaunderscta.wordpress.com/2013/06/25/starbucks-tax-avoidance-the-story-so-far/

Jun 30, 2013 4:27am EDT  --  Report as abuse
It should be pointed out that the focus on the profits in the UK accounts is quite misleading without consulting the rest of the accounts, the tax reconciliation note in particular.

From 2003, Starbucks’ trade started to move into taxable profit, even though the accounting profit continued to decline – this is the year when royalty payments commenced.

Royalty payments probably relate to the genuine economic activity attached to the roasting plant – the royalties were not paid until 2003 when the Dutch roasting plant commenced operation and the UK-based roasting plant was closed down. It would be absurd to suggest that the costs attached to the roasting plant should not recognised and it appears that arms-length licensees paid a royalty for this genuine economic activity.

Troy Alstead said at the Public Accounts Committee Starbucks’ that intra-group transactions were benchmarked on existing arms-length transactions. Broadly speaking, this is what anti-avoidance transfer pricing rules aims to impose. Starbucks appear to be complying with the intention of the law, not avoiding it.

There certainly is no evidence to suggest that the royalty payment is unwarranted. It is just a matter of quantifying it and Starbucks appear to have readily agreed an adjustment when challenged by HMRC.

They also stated at the PAC hearing that the loan interest goes to the US and cannot possibly save the group any tax.

http://bensaunderscta.wordpress.com/2013/06/25/starbucks-tax-avoidance-the-story-so-far/

Jun 30, 2013 6:33am EDT  --  Report as abuse
It should be pointed out that the focus on the profits in the UK accounts is quite misleading without consulting the rest of the accounts, the tax reconciliation note in particular.

From 2003, Starbucks’ trade started to move into taxable profit, even though the accounting profit continued to decline – this is the year when royalty payments commenced.

Royalty payments probably relate to the genuine economic activity attached to the roasting plant – the royalties were not paid until 2003 when the Dutch roasting plant commenced operation and the UK-based roasting plant was closed down. It would be absurd to suggest that the costs attached to the roasting plant should not recognised and it appears that arms-length licensees paid a royalty for this genuine economic activity.

Troy Alstead said at the Public Accounts Committee Starbucks’ that intra-group transactions were benchmarked on existing arms-length transactions. Broadly speaking, this is what anti-avoidance transfer pricing rules aims to impose. Starbucks appear to be complying with the intention of the law, not avoiding it.

There certainly is no evidence to suggest that the royalty payment is unwarranted. It is just a matter of quantifying it and Starbucks appear to have readily agreed an adjustment when challenged by HMRC.

They also stated at the PAC hearing that the loan interest goes to the US and cannot possibly save the group any tax.

http://bensaunderscta.wordpress.com/2013/06/25/starbucks-tax-avoidance-the-story-so-far/

Jul 01, 2013 2:14am EDT  --  Report as abuse
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