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Nero pays zero in corporation tax

Matt Freathy weighs down on companies who have avoided corporation tax, citing Nero as the most recent example.

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Image: Tony Monblat

Now an established staple of high streets across Britain, Caffe Nero delivered strong profits amounting to £25.5m last year, yet did not pay tax on a penny of it. In fact, through entirely legal exploitation of Britain's tax laws, the business has avoided paying even our relatively low level of corporation tax for years.

How can such a well-known business avoid paying anything in tax year after year without running afoul of the law? The answer lies in the company's shady ownership structure.

The Caffe Nero Group is a direct subsidiary of the 'Rome Pikco Group', who are themselves owned by a succession of corporations, such as 'Rome Immediate Holdings Sarl' and 'Saratoga Ltd', about which there is suspiciously little freely available information beyond that they are headquartered in the notorious tax havens of the Isle of Man and Luxembourg.

A comparative glance at the two companies' financial reports shows that they are almost identical, suggesting that despite being referred to in Caffe Nero's statements as a 'wider group', Rome Pikco do not conduct any real business activity outside of the coffee shop chain.

The main difference in the two companies' finances is Rome Pikco's £41m expenditure on interest payments on loans from third parties as well as their own parent companies, which eclipses Caffe Nero's profits and shows a £24.2m loss in Rome Pikco's accounts.

It is these payments, repeated each year, which are eligible for tax relief that allow Caffe Nero to avoid taxation on its significant profits, although the exact nature of the payments and their recipients is massively unclear. What is obvious is that Caffe Nero and their string of owners will go to great lengths to avoid paying their dues to a country from which they have profited greatly.

However, Caffe Nero are far from the first major corporation to capitalise on the loopholes in our tax system. Indeed, one of their biggest competitors, Starbucks paid only £8.6m in tax in their first 14 years of operation in the UK, despite revenues of £3bn in the same period.

Starbucks also serves as an example of the potential efficacy of public outcry against corporate tax avoidance. In 2015, they folded in the face of a growing PR nightmare and paid almost as much in corporation tax that year than they had in the previous 14 combined.

Tax avoidance costs the taxpayer an estimated £2.7bn each year, although the government appear to lack either the desire or the means to rectify the problem.

Last August's ruling by the European Commission that Apple must pay the Irish government a record-breaking EUR13bn should send alarm bells ringing for those in Britain opposed to corporate tax-dodging. There are suggestions that the Conservatives' strategy for keeping British business competitive post-Brexit is to transform the country into a shelter for multinationals wishing to avoid tax and punishment for their unethical behaviour-free from the jurisdiction of the EU, to the detriment of public finances.

If the government intends to turn a blind eye to such activities, then it is up to those among the public who feel that corporations should pay their fair share to take what action we can to pressure them into changing their ways, as with Starbucks.

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