Financial Transparency Coalition

Photo by Ian Britton

Transfer pricing, specifically the abuse-thereof, has found itself in the spotlight recently.  This highly technical accounting procedure, which multinational corporations use to shift assets between subsidiaries, went years without much media or congressional attention.  That all seems to have changed.

(Of course, not all transfer pricing is abusive, but I’m not going to try to explain the intricacies of transfer pricing in this post—my colleague Collin Swan did a pretty good job of that here last week.)

Abusive transfer pricing is a serious problem which began to seriously attract media attention after Jesse Drucker of Bloomberg News wrote an article this past May detailing how U.S. companies utilize transfer pricing to avoid paying $60 billion in U.S. taxes every year.  The Bloomberg piece led to a feature on ABC World New with Diane Sawyer and several other follow-up articles probing this topic.

Then, just last month, Congress took hold of the issue as the Joint Committee on Taxation (JCT) released a report detailing the nefarious transfer pricing practices of 5 real/unnamed companies, and as the U.S. House of Representatives’ Ways and Means Committee held a full hearing on the issue of transfer pricing.

Now, this focus on transfer pricing has spread to other countries and other industries.   The Daily Mail reports yesterday that the UK’s HM Revenue & Customs is currently investigating Starbucks Coffee for potential transfer pricing abuse.  From the Mail:

Now it seems the taxman is looking into how much the British Starbucks pays its American parent for coffee beans and other supplies.

In a note to its annual British accounts, Starbucks said: ‘The company is in discussion with HM Revenue & Customs regarding its transfer pricing policy.’

According to the accounts for the year ending September 27, 2009, the Starbucks Coffee Company (UK) received a tax credit last year of £115,000, up from a tax bill the previous year of £20.6 million. The company’s overall loss for the year was £52 million, up from £26 million the previous year.

The notes in the accounts state that if its transfer pricing policy was adjusted by the taxman, ‘the company believes it has sufficient unrecognised deferred tax assets that it could utilise’. In other words, it could cope with a bigger tax bill.

But the company is defending its position. A spokesman said: ‘We are in discussions with HM Revenue & Customs regarding Starbucks’ transfer pricing policy, which we believe to be reasonable.’

Whether or not Starbucks abusively manipulated its accounting for tax avoidance purposes, this is good news for both honest-paying citizens and tax justice campaigners alike, as the spotlight continues to grow on this harmful practice.    As most of you who regularly read this blog know, the best way for us to curtail abusive transfer pricing is through an international country-by-country reporting standard, which is slowly gaining strength around the world.  The more attention paid to abusive transfer pricing, the sooner we’ll achieve country-by-country reporting.

Keep up the good work.