The marketing smackdown and that very odd voluntary tax "payment" Protests come with such excellent branding these days. UK Uncut proffered this in a November 11th posting on its site that announced action on December 8th: At the protest itself, this rather creative t-shirt (photo courtesy of @HeardinLondon): The claim by UK Uncut: If the government took strong action to stop tax dodging by companies like Starbucks- who haven't paid any income tax for the last three years- we could easily afford to prevent the £5.6m being cut from violence against women services, the 25% cut to funding for Sure Start centres and the further £10 billion benefit cuts. Make of it what you will. It was, in a way, rather unfortunate that UK Uncut still went ahead with their protests at Starbucks branches on Saturday, December 8th. A number of companies have come under scrutiny for their tax arrangements (see above t-shirt for reference) and the Starbucks did make quite aggressive voluntary concessions in response to the furor. Little wonder why, of course: The survey sample was taken from November 24-26. The reporting last week of Starbucks" concession to (try to) pay more tax in the UK focused on the company's estimate of how much they might pay - some £10m in each of 2013 and 2014. But what exactly has Starbucks offered? Well: For two years, or until we make a profit, Starbucks UK will not claim deductions: For the royalties it pays For the coffee it purchases For interest paid on intercompany loans For capital allowance deductions nor our carry-forward losses In our second post in this series, we explained the first three, using this diagram: Starbucks is going further than just reversing the items in the picture. Concerning the coffee purchases from the Switzerland office (point 2), Starbucks is saying that they won't just take out the mark-up on the coffee (of 20 per cent) but the entire cost of the coffee. A friend of FT Alphaville, familiar with the coffee trade, got in touch with us on Wednesday and said person reckoned coffee cost is 4 to 6 per cent of sales. For Starbucks UK, that would make the above concession worth £16-24m. Tallying up, that's £16m of coffee (at the low end), £26m of royalties, and £2m of interest payments, when using last year's accounts as a guideline. Removing those for 2011 would have gotten Starbucks UK to a £11m profit before tax. This, however, is from the financial accounts, not the tax accounts. Important when one considers that none of the first three concessions would count for anything were it not for the fourth. Context from the 2011 accounts: As Starbucks UK is loss-making (for UK tax purposes) it could pile up deferred tax assets (DTAs) to use in a profitable year - should it ever improve its coffee offer decent tea get there. DTAs are recognised in the balance sheet when "it can be regarded as more likely than not that there will be suitable taxable profits" in the future. In other words, the company has to think that it will make profits in the future, and hence it will be able use the DTAs to lower tax liabilities. For additional context, the stack of losses Starbucks has made in the UK since it came to these shores: Not too shabby! But yes, this is with all the tax planning to date. Anyhow, what the recent note on DTAs reveals is that Starbucks didn't recognise the amount it could have gotten for things like capital allowance deductions (on investments it made, presumably). If it does do so in 2013, then all its efforts to try to pay tax could go to waste. And they WANT to pay tax now (Hi, UK Uncut!), hence: All of this is subject to negotiation with HM Revenue and Customs. Is there a form for, "we want to decline some big ticket adjustments we're entitled to"? Back to our friend who pointed out the rough cost of coffee to us. Said person reminded us how Starbucks branches look kinda the same everywhere in the world. The implication being that a hell of a lot of Starbucks UK's stuff is likely to be sourced from outside the country (from other Starbucks units, that is, in the US or elsewhere). Those characteristic chairs and couches, the Frappuccinos, the mugs, and so on. All of which will involve some transfer pricing and end up in the UK unit's cost of sales, thus reducing tax liability. In other words, the costs Starbucks is offering not to recognise in its 2013 and 2014 UK tax accounts are, well, kinda arbitrary in a way. They are the items mentioned in the press, plus an extra one that has to go in lest the first three get negated by it. Which brings us back to the global point about transfer pricing. Ultimately, there need to be tax laws that are coordinated and that work for society as a whole. To those who argue that Starbucks shouldn't have volunteered (cause it is what it is) to pay tax in advance of a change in law, please note: populism shouldn't set company tax, but it sure as hell helps to get the ball rolling sometimes. But also to the populists - note that this tax payment will ultimately hurt shareholders of Starbucks, and then note that Starbucks UK staff are entitled to "Bean Stock." Read about it here, if you like. Related links: Costa Coffee attracts nearly 4m customers a week - Guardian Starbucks to pay £20m UK corporate tax - FT