Friday, February 1, 2013

MPs on Multi-National Transfer Pricing

UK tax law is ambiguous enough that there is latitude for firms to realize more of their profits in low tax rate jurisdictions rather than higher tax rate UK.  Accounting firms are more than happy to offer advice on how to get it done. MP Margaret Hodge appears surprised that a firm would follow an accounting strategy that nets it higher profits.

She pointed to one example where PwC advised a firm to spread its offices through the Cayman Islands, Jersey, Luxembourg and Switzerland.

It appears she doesn't quite get what motivates firms.
"What really depresses me is you could contribute so much to society and the public good and you all choose to focus on working in an area which reduces the available resources for us to build schools, hospitals, infrastructure."

Auditors appear to be saying, "stop us before we avoid taxes again".
The UK head of tax at Ernst &Young, the accountancy firm that audits Google, Amazon and Facebook, has admitted that international guidelines that allow online firms to pay much lower corporation tax than their rivals are outdated and in need of urgent reform.
John Dixon told a committee of MPs that the Organisation for Economic Co-operation and Development (OECD), which drafts the politically contentious rules, was facing a "difficulty … [it] needs to address" because the codes established decades ago never envisaged an explosion in online commerce.

Suppose the law is changed so that accounting firms have little ability to realize profits in low tax rate jurisdiction. A prediction would be less vertical integration by firms.

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