top of page

Here is how Caffe Nero pays no taxes on multi million £s of revenue

I am an avid coffee drinker. Heck, coffee is considered to be the corporate drug. Millions of people drug themselves to cheerfulness with this drink before they start their lousy work lives. Nero definitely stands out as one of my favourite coffee brands. As ubiquitous as they are in London their tax reporting and payments are equally cryptic.

A recent newspaper article caught my eyes and got me wondering as to how is it that this Italian branded coffee company after generating an operating profit (EBIT) of £17.7m on revenues of £313m in 2017 ended up with a loss before tax of £25.5m This mean that the company paid no tax. No wonder being a tax consultant pays handsomely at big auditing outfits. Be ready for a similar question while interviewing for investment banks.

Taking a leaf out of the private equity book, Nero decided to load its balance sheet with debt. Being a coffee company with stable cash flows, allows it to take on more debt and hence capital structure risk when compared to companies in other sectors. Hmmmm… all good but what is interesting is the source of the debt. A significant component of total debt in essence belongs to its parent company and eventually the accompanying interest payments finds its way to Luxemburg, i.e. outside the UK.

This loan first raised in 2007, that needs to be repaid to its parent company carried an interest rate of 25% per annum in 2007, reducing sequentially by 1% every year but floors out 19% after which it stays there for the remainder of the loan duration.

This is exorbitant, compared to a senior debt which can be raised at Libor +3% margin, resulting in mid-single digits kind of the final interest rate. The interest paid, is tax deductible and so Nero Caffe gets away with paying almost reduced or no taxes here in the UK with its parent company in Luxemburg earning the high interest rates and booking a profit in that lower corporate tax country.

What’s even more interesting is that Nero actually never pays any cash interest to its parent company but rather the total interest annually gets rolled over. This outstanding interest expense now stands at £235m as of March 2017.

This article is a summary extract of the more detailed article written by Professor Prem Sikka which can be found here:


We have an 88% placement rate for our 4 to 8 weeks training programs conducted in 2017/18 with students going on to secure jobs at marquee investment banks such as Goldman Sachs, Credit Suisse, Morgan Stanley, Citi Bank and Deutsche Bank among others. Please send your CV to to check your eligibility for the course.

3,224 views0 comments


bottom of page