Anorak | Starbucks really wasn’t making a profit you know

Starbucks really wasn’t making a profit you know

by | 23rd, September 2013


YOU’LL all recall a little while back there was that furore about how much Starbucks was or wasn’t paying in corporation tax. And one of the defences offered for the company was that as they weren’t making a profit then there wasn’t any tax that they should have been paying.

Then the conversation turned to the things they were doing inside their accounts. For example, they paid a royalty to a Dutch firm for using the Starbucks name. That did indeed dodge UK tax (actually, EU rules make it illegal for the UK to try and tax that amount). But even so, even if we add that money back in, Starbucks UK still wasn’t making a profit.

So we move on to the next bit, which is that Starbucks were paying a 20% fee on the coffee beans they bought from Switzerland. From another Starbucks company of course: there, that’s real tax dodging!

And then today the Mail tells us how much the coffee actually costs:

 Cost of actual coffee in a medium £2.20 cappuccino amounts to 8p

Let’s call that 4% shall we? Just among friends. No, Anorak knows, not all their sales are coffee but we’ve got to make some simplifying assumptions. And the 20% margin on that would then be 0.8% of sales. Or, on £400 million in sales that’s £3.2 million.

If we add back in £3.2 million to Starbucks’ reported losses, add back in that royalty payment too, Starbucks UK is still making a loss. Thus the reason it’s not paying any tax is because it’s not making any profit. Which seems simple enough, given that you do only have to pay corporation tax on your profit.

Finally there’s the various loons who insist that they must be making a profit otherwise they wouldn’t even be bothering. At which point it’s necessary to point out that making a profit is actually difficult. And it’s not unusual at all for a company to fail to make profits (without any dodges) but think that they will in hte future so it’s worth carrying on through the losses to reach that state of profitability.

But the reason Starbucks wasn’t paying taxes is very simple indeed: it wasn’t making any profits to pay taxes on.

Posted: 23rd, September 2013 | In: Money Comment (1) | Follow the Comments on our RSS feed: RSS 2.0 | TrackBack | Permalink