Mammy: Dirty Hands... Dirty Face!
June 30, 2003 5:19 AM   Subscribe

Ballpoint pen from Trinidad: US$8,500. Rocket launcher to Israel: US$52. How multinational companies use absurd prices to dodge taxation, worldwide.
posted by Pretty_Generic (11 comments total)
My Introduction to Financial Accounting course (core course for all Business majors at my university) taught us to do exactly this. It's common practice, and from a corporate standpoint, good business.
posted by meanie at 5:25 AM on June 30, 2003

posted by cohappy at 6:04 AM on June 30, 2003

More details and a Moron's guide to transfer pricing

Socialize costs, privatize profits.
posted by elpapacito at 6:10 AM on June 30, 2003

And people wonder why I'm anti-corporate.
posted by Cerebus at 6:29 AM on June 30, 2003 [1 favorite]

Accounting is stupid.
posted by graventy at 6:39 AM on June 30, 2003

Markets treat taxation as damage, and route around it.
posted by Slithy_Tove at 6:56 AM on June 30, 2003

From elpapacito's link (my emphasis in all cases)- So by increasing the purely arbitrary transfer price we doubled our after-tax profit, increasing it by 100%.
This was done without any change to our procedures, operations or added value, was done by merely changing book entries.
So where do these additional profits come from?
They arise from tax avoidance. In other words it is possible for a multinational company to minimise its liability for corporation tax by transfer pricing.
This is legal until governments legislate to prevent this practice.
But note that in the cases we discussed, the tax paid to the host-country government increased, while the tax paid to the home-country government decreased, case by case. In other words, one government's loss is the other government's gain.
So one government can be expected to want to legislate against unfair transfer pricing practices, while the other government can be expected to object to, and to resist, such legislation.

So, (and keen observers of my work will notice that I've made a similar argument before), every nation in the world is eventually drawn into a taxation limbo dance.

I am a firm believer in the notion that there is no civilization without taxation, so this is exactly the kind of thing that gives me a bit of shit on the liver.

I am also well aware that shareholders profit from this practice etc. However - what pains me is that corporations (and individuals for that matter) behave as if they had developed and prospered in a vacuum. They feel no obligation to help sustain the social stability and prosperity from which they benefit, despite the fact that their success is in large part attributable to those same social circumstances.

If someone can explain how this is a tenable attitude in the long-term (even from a purely business perspective), I'm all ears.
posted by backOfYourMind at 7:51 AM on June 30, 2003

Unfettered Capitalism Soils Own Nest: Film at 11.
posted by Cerebus at 8:12 AM on June 30, 2003

Actually, Cerebus, that film won't be airing anytime soon. First it got rejected from Big Corporate Media-owned stations, then PBS funding got cut. So unless you happened to go to school with the filmmaker, you're out of luck.
posted by Vidiot at 9:15 AM on June 30, 2003

I am aware of the irony(ies) in the statement. 8)
posted by Cerebus at 9:40 AM on June 30, 2003

this is exactly the kind of thing that gives me a bit of shit on the liver

What does that phrase mean? I completely don't understand it.
posted by five fresh fish at 10:06 AM on June 30, 2003

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