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

Starbucks’ European business paid $183m in dividends to its US parent company despite incurring large losses as the coffee market suffered its first dip in growth in two decades during the coronavirus pandemic.

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

In the UK, where Starbucks runs a mix of company managed and licensed stores, the company suffered a £41m pre-tax loss, compared with a loss of £6.6m in 2019. Its UK revenues fell a third to £243.3m.

The group paid $3.1m in tax from its European businesses but also paid a $183m 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 lossmaking and continues to be lossmaking . . . The question is why are they running a lossmaking 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.”

Starbucks has seven businesses for which it reports accounts in the UK. The profit it reports for its Emea 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 £8.6m 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.

Jeffrey Young, chief executive of Allegra World Coffee Portal, the industry research firm, said the pandemic had caused the first dip in the growth of the out-of-home coffee market in more than 20 years, and it had been “really, really rough” for big chains that relied on busy high streets and office-heavy locations.

Allegra did not expect the sector to return to its pre-Covid-19 strength until 2024 because of the increased trend for remote working.

Despite closing all of its UK stores during the first lockdown last year, Starbucks only permanently shut three UK stores and did not claim any government support. Labour costs during the year were £77m.

Alex Rayner, general manager of Starbucks UK, said the pandemic had hit company profits “dramatically” and added that the chain had to adapt to customers “who want delivery, drive-through stores and convenience”.

“I’m optimistic about the summer and our future but we continue to watch our UK operations very closely,” he said.

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