Coffee giant Starbucks announces record profits... and reveals corporation tax bill

The UK arm of the US-based chain said pre-tax profits jumped to £34.2 million in the year to September 27, compared with less than £2 million a year ago - as it closed unprofitable shops and reshaped its store portfolio.

The group, which runs 843 UK stores, added that like-for-like sales grew at 3.8% in the period.

The business said in 2012 it would pay more tax after a public outcry over its tax affairs, which led MPs to call its corporate structures “immoral”. It was claimed Starbucks transferred profits to lower tax jurisdictions.

Prior to that, the firm paid £8.6 million in corporation tax in its 14 years of trading in the UK, despite racking up sales worth billions of pounds since it was launched in 1998.

The business actually paid £11.4 million in corporation tax last year, but this was part of a voluntary £20 million two-year pledge to pay more tax in response to increasing public pressure.

Starbucks European, Middle East and Africa president Kris Engskov said: “Before and after tax profits are both up by more than £30 million, as we have invested in the store experience while managing our costs.

“As a result our corporation tax payments also increased.”

A growing number of US and other international firms are being investigated over their tax affairs by the European Commission (EC).

In October, Starbucks and Italian carmaker Fiat were ordered to repay up to 30 million euro (£22 million) in illegal tax breaks after the EC found that deals struck between the coffee chain in the Netherlands and carmaker in Luxembourg effectively amounted to illegal state subsidies that must be repaid.

The deal was seen as a landmark ruling and a major step forward in the battle against tax avoidance deals used by global multinationals.

EU antitrust Commissioner Margrethe Vestager said: ‘’Tax rulings that artificially reduce a company’s tax burden are not in line with European Union state aid rules. They are illegal.’’

Earlier this month, the EC added it would probe tax deals it said had been struck between US fast food chain McDonald’s and Luxembourg.

It said the probe will look at alleged deals negotiated by the global giant to avoid paying taxes in Luxembourg and the US.

The EC said the European arm of McDonald’s has paid virtually no corporation tax in Luxembourg or the US since 2009 after two rulings were made in Luxembourg, despite making significant profits in the division - more than 250 million euro (£177 million) in 2013 alone.