Bwahahaha

Oh, boy, this Grauniad investigation is indeed fun:

International companies based in the UK may have hundreds of subsidiary companies, which many use to take advantage of differing tax regimes as they move goods, services and intellectual property around the world. It is estimated that more than half of world trade consists of such movements (known as transfer-pricing) within corporations.

No you innumerate little twats.

Some half of global trade is indeed estimated to be intra-company trade. Dell\’s motherboards (to take an example which I have no idea is true or not) are shipped from China to Ireland where they are assembled into a computer and then shipped to Dell\’s UK subsidiary for sale to me sitting in London. Dell owns the plant in China, the one in Ireland and the mail order place in the UK.

That\’s intra-company trade and as I say, on some estimates it\’s half of world trade.

Transfer-pricing is something rather different. OK, at each stage of this process there will indeed be an intra-company price at which the goods are transferred. Transfer-pricing however normally refers to people manipulating those prices to take advantage of tax rules. You see the difference? With global companies and dispersed production, intra-company trade is inevitable. But whether they\’re using transfer-pricing (in the meaning of being naughty about it) is another matter. 

7 comments on “Bwahahaha

  1. I know from bitter experience that tax authorities around the world are very hot on transfer pricing, especially for services. China’s customs authorities aver very hot on pricing and making sure that exports reflect the true value.

    I’d be very surprised if there are many shenanigans going on with transfer pricing.

  2. ” Transfer-pricing however normally refers to people manipulating those prices to take advantage of tax rules. ” I must be getting old, but a transfer-price used to refer just to the fact that some price must be assigned to stuff that passes from one part of a company to another. Naturally, that price could, at least in part, be arbitrary. So the company would be foolish not to pick a price that led to a low tax bill.

  3. There are all sorts of shenanigans going on (it’s always worth a punt)

    What is really spiteful, the tax office in the seller’s country ups the price and the tax office in the buyer’s country reduces the price, so the group often ends up paying tax twice.

    HMRC wanted to disallow part of the price paid by a UK member of an overseas group, and in an inspired moment, I persuaded HMRC that the correct charge should have been higher (thus securing an extra tax deduction).

    Faced with my impeccable logic they had no choice but to give in. Trimph. Only six months later they wrote back and said they’d changed their minds. That’s how underhanded they can be sometimes.

  4. As dearieme mentions companies always try to do transfer pricing in a way that is beneficial to their tax bill.

    However they don’t always get away with it. Some countries, such as the UK and China are very hot on getting it right as The Great Simpleton mentions. I’ve discussed this with various people in business, you can’t get away with assigning silly prices.

    Some countries though are rather lax. I’ve heard that many mainland european countries fall into this category, but I can’t confirm it.

  5. “As dearieme mentions companies always try to do transfer pricing in a way that is beneficial to their tax bill.”

    Yep, that’s efficiency proven for you. Of course they are trying to make as much money as possible for their shareholders, that’s their purpose.

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