Is U.K. Starbucks in Tax Trouble?

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Reuters reports that Starbucks (NASDAQ:SBUX) paid no tax in 2012 after  reporting its 15th straight annual loss at its U.K. stores. The company’s lack of tax payments has created a backlash against Starbucks and corporate tax avoidance in the U.K.

The accounts filed on Friday show a U.K. loss of 30 million pounds ($46 million), which was better than the loss of 32 million pounds the previous year. According to Starbucks, the economic conditions and a competitive U.K. coffee market have made it extremely difficult to turn a profit.

The royalty pricing of using the Starbuck’s brand is also of concern — the brand of Starbucks was responsible for a royalty charge of 26 million pounds. The royalty is paid to an affiliate in the Netherlands for a low tax rate while the U.K. Starbucks unit also paid 2 million pounds of interest to companies connected with Starbucks.

In a statement, Starbucks said, “We listened to our customers in December and so decided to forgo certain deductions which would make us liable to pay $16.64 million in corporation tax this year and a further $16.64 million in 2014. We have not paid $8.32 million and will pay the remaining $8.32 million later this year.”

“Six months ago, we felt that our customers should not have to wait for us to become profitable before we started paying U.K. corporation tax,” Starbucks said.

Following the tax backlash, which included statements from politicians and picketing in front of stores, Starbucks has announced that it will pay or pre-pay taxes of about 10 million pounds in 2013 and 2014. It will also not take tax deductions for intercompany payments — royalty fees, interest payments, coffee bean mark-ups — that have been a source of significant ire.

Starbucks has already made a 5 million pound payment to the U.K. tax authority for 2013 with more to follow. Starbucks has also outlined changes it plans to make given that its stores continue to operate at a loss. “We are also undertaking measures to make Starbucks profitable in the U.K., such as relocating unprofitable stores to more cost-effective locations, closing them where that is not possible and placing greater reliance on franchised and licensed stores,” Starbucks said.

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