UPDATE 1-Starbucks suffers first UK sales drop after tax criticism

Thu Apr 24, 2014 1:17pm EDT

* UK sales fall after 16 years of strong growth

* Saw consumer boycotts after criticism of tax payments

* Starbucks says results reflects rise in licensed stores (Adds comment from company)

By Tom Bergin

LONDON, April 24 (Reuters) - Starbucks suffered its first ever drop in UK sales last year, a period in which the company became the subject of boycotts and public criticism over its tax practices.

Accounts for the group's main UK subsidiary, Starbucks Coffee Company (UK) Ltd, showed turnover fell in the year to the end of September 2013 to 399 million pounds ($670.3 million) from 413 million pounds the previous year.

The drop follows 16 years of consistent strong growth and comes despite the business "being supported by an improving economic environment", the accounts said.

Starbucks said the result was not because of weakness in the business but reflected the closure of unprofitable stores.

"The UK business is moving in the right direction: gross profit is up 13 percent ... We are confident this performance will continue as we continue to reduce costs," a spokesman said, adding that the group plans to open 100 news stores across the country this year.

The U.S.-based company triggered a media storm, store pickets and customer boycotts after Reuters reported in October 2012 that it had told the UK tax authority its British arm was a loss-making business while informing investors that the subsidiary was profitable.

Corporate tax avoidance has risen to the top of the international political agenda, partly as a result of public anger at Starbucks' tax affairs.

The company was asked to testify to a parliamentary investigation and Prime Minister David Cameron told a meeting at the World Economic Forum in Davos that companies that avoided paying tax needed to "wake up and smell the coffee".

In response to the criticism, Starbucks agreed to pay 20 million pounds in tax over 2013 and 2014. It has already paid 15 million, the accounts said.

The company has said it follows all tax rules.

Starbucks Coffee Company (UK) reported a loss for the year to September 2013 of 20 million pounds after deducting inter-company payments such as royalties for the use of the Starbucks brand, which the company agreed in 2012 not to deduct for tax purposes.

Last week Starbucks said it would move its European headquarters to London from the Netherlands this year and pay more tax in the UK as a result.

Reuters Special Report on Starbucks Tax Affairs:

here ($1 = 0.5953 British Pounds)

(Editing by Susan Fenton and David Goodman)

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