Tuesday, May 18, 2010

Dark Side of Transfer Pricing: new AABA paper

Prem Sikka at the University of Essex, and Hugh Willmott at the University of Cardiff, have produced a new publication entitled The Dark Side of Transfer Pricing, which we will be adding to our Transfer Pricing page. As Ernst & Young put it:

"transfer pricing continues to be, and will remain, the most important international tax issue facing MNEs (multinational enterprises.)"

This is so significant that it is not just about corporate profits: the paper cites one analysis as saying

"transfer pricing may be playing an important role in aggregate national accounting, potentially reducing the reported value of exports and the current account (and thus GDP)"

A few days ago, Bloomberg cited a study that estimates

"$60 billion in annual U.S. tax revenue [is] lost to thousands of companies’ income shifting, according to a study published in December in the National Tax Journal by Kimberly A. Clausing, an economics professor at Reed College in Portland, Oregon."

Stuffed with egregious examples, the paper makes a useful introduction to, and overview of, the issues. The paper concludes:

"We would suggest that research into politics of transfer pricing presents considerable opportunities for illuminating capital flight, tax avoidance, complexities of globalization and the deepening crisis of the state. Such a research agenda would place transfer pricing in broader social, political and organizational contexts and show how with the support of professionals (e.g. accountants, lawyers) accounting techniques are mobilized to allocate and retain wealth."

TJN will be pleased to contribute to this agenda.


Anonymous Ken Parker said...

Governments have actually gotten quite sophisticated at enforcing the arm's length standard that requires that goods and services transacted among related parties be priced at their market value, preventing companies from shifting profits to low-tax jurisdictions. The difficulty arises in determining the arm's length price of goods that are not readily comparable to those being transacted by unrelated parties, such as those containing proprietary intellectual property. These recent enforcement trends are discussed in detail in the newly updated 2010 edition of the Tax Director's Guide to International Transfer Pricing. To learn more, please visit:

10:04 pm  
Anonymous TJN said...

In a vast section of these transactions, governments have not got any more "sophisticated" in dealing with the ALS because it's an unworkable system. Just take a look at the expert papers on our transfer pricing web section.

4:33 am  

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