Tuesday, August 11, 2009

Tax havens and transfer pricing: new study

Germany's Institute for Development has published a new study into tax havens, transfer pricing and global governance.

Its introduction has some nice turns of phrase:

"Tax is the price of civilization. Tax havens are the price of globalization."


"It is estimated that 60 percent of the trade done by multinationals occurs within the group. The prices set for these internal transfers are not verifiable and are not governed by market principles. This is the greatest irony of free market economics: a substantial proportion of world trade (that occurring within MNCs) is not governed by prices set by the market!

And then it gets into the meat of the issue:

"The issue of international transfer pricing is closely linked to tax havens. MNCs have no incentive to manipulate transfer prices if both home and host countries have similar tax structures. Apart from the tax differences between two normal countries, the existence of low-tax jurisdictions, coupled with mobile capital, complicates the issue of tax compliance. "

The rest of the report is here.


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