Starbucks Reports 1st Ever UK Sales Drop Post Tax Avoidance Row

US coffee giant Starbucks, which faced severe criticism in the UK for its tax evasion tactics, experienced a decline in sales in the country after 16 years of strong growth.

Starbucks' main UK subsidiary reported a 3.4% decline in sales to £399.4m ($670.6m, €485.1m) in the year to the end of September 2013 from £413.4m in the previous year.

Nevertheless, the company said its UK business is "being supported by an improving economic environment" and the drop in sales reflects the closure of its unprofitable stores.

"The UK is our fastest-growing market in Europe. Gross profit is up 13% and operating margin is up more than 22%. The loss before tax fell by more than 30%," a company spokesman said.

"We are on schedule to open 100 new stores this year and expect the business to continue to grow."

Pre-tax loss for the year amounted to £20.4m, as the company allegedly continued its tax dodging primarily via Netherlands.

Margaret Hodge, the Labour MP who chairs the Commons Public Accounts Committee, said Starbuck's continued loss in the country is difficult to digest. The committee spearheaded UK's attack on multinational companies such as Starbucks, Google and Amazon over their offshore tax avoidance.

"If it is right that the UK is the best market in Europe and it is the most profitable, how on earth can it continue to file losses?" Hodge asked.

The company paid £3.4m in UK corporation tax last year, according to its accounts, but it noted that the payment was a voluntary decision.

Taking up the tax avoidance issue at the World Economic Forum in Davos, Prime Minister David Cameron had said companies that avoided paying tax needed to "wake up and smell the coffee."

After facing severe criticism from consumer groups and the British Government over tax avoidance, the global coffee chain said in June 2013 that it paid £5m in British corporation tax and will pay another £15m by the end of 2014.

It was for the first time in five years that the company had paid the UK corporation tax.