Recorded Deferred Tax Assets and Liabilities of Starbucks from 2011 to 2013

Starbucks Case Study: taxation
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Introduction
Accounting for income taxes is complicated since transactions can be reported at different times from those of the financial statements because of income tax requirements. In the case of Starbucks, having global operations requires that the company complies with laws of various tax jurisdictions. At the same time, the income tax requirements may differ from those of GAAP when dealing with specific transactions and events, and the wide array of approaches requires that there in use of reasonable judgment when preparing information for income tax purposes. Starbucks rely on the deferred method for income tax allocation, and this occurs when there are timing differences, and the consistently recorded deferred tax assets and liabilities in 2011 to 2013.
2011
The income taxes for 2011 were higher than 2010, because the company’s operating income was higher, and the earnings before interest and income was also higher. As at October 2, 2011, the company reported income taxes of $ 563.1 million. The change in the effective tax rate was lower than 2010 because of joint venture transactions in Austria and Switzerland where there were benefits. Similarly, an increase in the income in the low tax rate led to lower effective tax rate. The company’s resolved to use short-term investments and cash to invest in core businesses. The company mentioned that in the event that the company was made to repatriate international cash, then this would lead to further US income taxes. In accounting for income tax liabilities, the company recognized that there was uncertainty in the tax position as Starbucks could not make reasonably reliable estimate.
Another aspect that was taken into account in 2011 was the value of differed tax assets and liabilities, dependent on the differences between the carrying amount of financial statements and tax bases of the assets and liabilities. Hence, the company estimated deferred assets and liabilities based on the enacted tax rates applicable to thee taxable income. Similarly, the company also focused on value of deferred tax assets and in cases where there was valuation allowance focusing on the available evidence. In order to show that the company complied with laws, auditing conducted by both domestic and foreign tax bodies. The audits conducted further delved into the returns of 2011 across diverse tax jurisdictions. The tax liability also focused on the impact of an uncertain tax position showing that there was a need to adjust the unrecognized tax benefits
2012
In recognition of the need to comply with applicable laws in numerous jurisdictions, the company used the relevant accounting information for taxation purposes, highlighting on the need to adhere to tax rules and other requirements. In any case, failure to comply with tax rules could harm the company’s overall growth in the international market. For the year ended September 30, 2012, there was an increase in earnings before interest and tax from the previous period which resulted to higher income taxes even though, there was a reduction in the level of net interest income as a result of lower benefits from joint venture operati...