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                                   Planning for Development: On Transfer-pricing                                                            

The taxman's nightmare ( transfer-pricing by transnational corporations).
The strategy that gives the taxman nightmares involves shifting profits from high-tax to low-tax jurisdictions. This is done either by transferring a company's financial risk (and its potential future profits) to an Offshore Finance Center, or by exploiting the ambiguities of transfer-pricing rules which govern how multinationals (transnationals) divide up their profits among the countries they operate in.
( From
The Economist, 22 February 2007)

From The Economist - February 2013

Tax havens
The missing $20 trillion
How to stop companies and people dodging tax, in Delaware as well as Grand Cayman

CIVILISATION works only if those who enjoy its benefits are also prepared to pay their share of the costs. People and companies that avoid tax are therefore unpopular at the best of times, so it is not surprising that when governments and individuals everywhere are scrimping to pay their bills, attacks are mounting on tax havens and those that use them.
The archetypal tax haven may be a palm-fringed island, but as our special report this week makes clear, there is nothing small about offshore finance. If you define a tax haven as a place that tries to attract non-resident funds by offering light regulation, low (or zero) taxation and secrecy, then the world has 50-60 such havens. These serve as domiciles for more than 2m companies and thousands of banks, funds and insurers. Nobody really knows how much money is stashed away: estimates vary from way below to way above $20 trillion.

OFFSHORE FINANCE - Moving pieces
22 February 2007
From The Economist print edition - For reading the complete especial report press here

Global companies have plenty of latitude to minimise their tax bills
  Gary Neil
IT WAS as if America had swallowed Sweden. Since George Bush signed into law a one-off tax amnesty in 2004 that slashed corporate-tax rates from 35% to just over 5%, American companies have repatriated close to $350 billion in previously untaxed foreign profits, according to estimates by JPMorgan, a bank—just shy of Sweden's annual output. Pfizer, a drugs company, alone brought home an eye-popping $38 billion. Well over $150 billion of American companies' foreign profits still sit offshore.

'Transfer pricing' is the biggest tax avoidance scheme of all. The government must insist on companies being more transparent.
Shifting profits across borders
By Prem Sikka -, Thursday 12 February 2009 09.30 GMT
In recent days the Tax Gap series of articles has identified secrecy, complex organisational structures, tax havens and profit hungry accountancy firms as the key ingredients of the tax avoidance industry. They all come together in the biggest tax avoidance scheme of all, known as "transfer pricing". The name of the game is to shift profits to low tax jurisdictions and avoid taxes in countries where corporations have substantial trading operations.
Globalisation has enabled a computer microchip company to design its products in country A, manufacture in B, test in C, hold patents in D and assign marketing rights to a subsidiary in country E. Such a structure gives corporations huge discretion in allocating costs to each country and shift profits through internal trade. Around 60% of the world trade consists of transfers internal to multinational corporations. This gives them numerous opportunities for shifting profits across borders.

E.J. Bartelsman and R.M.W.J Beetsma - 2000
Why pay more? Corporate tax avoidance through transfer pricing in OECD countries
This paper presents evidence of profit shifting in response to differences in corporate tax rates for a large selection of OECD countries. In our stimates we control for the effects of tax rate changes on real activity. Our baseline estimates suggest that, on average, a unilateral increase in the corporate tax rate does not lead to an increase in corporate tax revenues owing to a more than offsetting decline in reported profits.

Texas A&M University - July 2000
Transfer Pricing, Intrafirm Trade and the BLS International Price Program
Lorraine Eden - Associate Professor of Management - Texas A&M University
Most governments keep balance of payments statistics on exports and imports, by value, and construct international prices indexes in order to deflate these statistics. How can intrafirm trade, trade between related parties, bias the construction of these international price indexes? Does transfer pricing, the prices of products traded between related party firms, bias the export and import price indexes in any predictable fashion? If firms manipulate transfer prices to avoid taxes or tariffs, what is the appropriate transfer price to use in constructing export and import price indexes, in theory and in practice? These issues are important because related party trade is huge, representing half of US imports and one-third of US exports, and perhaps a third of worldwide merchandise trade flows. This paper explains how transfer pricing and intrafirm trade can bias the construction of export and import price indexes, outlines and evaluates the various prices that could be used to construct these indexes, and makes some recommendations for the international price program run by the US Bureau of Labor Statistics.

December 2002, Draft
Governance in the Financial Sector:
The Broader Context of Money Laundering and Terrorist Financing
Daniel Kaufmann, Director, Global Governance, World Bank Institute
Even though substantial amounts of work have been done in the money laundering field, the focus until recently has been on particular banking institutions and a few countries. Since last September 11, however, the work has broadened to become a global concern. Many challenges and issues are still being debated.
Yet the challenge of money laundering is still viewed within a rather narrow context, one that still tends to focus narrowly on the banking system, and divorced from the links of poor governance and corruption in the public and private sectors. Here we suggest that it is important to approach the diagnostic, analysis and actions in the Anti-Money Laundering (AML) challenge within a much broader governance context. To provide a brief synthesis of key aspects and linkages within such broader governance framework, we present the “laundromat” AML chart below (and in slide 2 of the attached presentation in annex).

State Administration of Taxation - 2002
People's Republic of China

Transfer Pricing Tax System and the development in China

"Statistics show that between 1988 and 1993, 35-40% of FIEs reported losses. Between 1994 and 1995, 50-60% reported loss. Between 1996 and 2000, 60-70% reported losses. It was true that some FIEs did lose money. Most others however were fake losers. They were avoiding tax by using schemes such as TP."
Tax, transfer pricing top China’s ‘08 list
Florence Chong, Editor, ASIA TODAY INTERNATIONAL - 15-06-2007
BEIJING – The new China Enterprise Tax Law will become effective from January next year, but the Government has yet to work out implementation details.
Beijing has overhauled its taxation system essentially to bring about a level playing field – where Chinese and foreign-owned companies will pay the same tax rate, of 25 per cent.
Preferential tax treatment offered to foreign investors will be phased out. Presently, some foreign enterprises pay no tax – and, if they do, the rate is capped at 15 per cent. Under the changes, foreign companies potentially will have to pay a 25 per cent corporate tax on profits, plus a likely 20 per cent withholding tax on dividends, totalling 36 per cent, says Jason Chang, a tax partner with KPMG in Australia.

Presentation at the Workshop on
Association for Accountancy and Business Affairs
in association with the Tax Justice Network
Estimates of Capital Movements from African Countries to the U.S. through Trade Mispricing
Simon J. Pak - Associate Professor of Finance
The Pennsylvania State University
Great Valley School of Graduate Professional Studies
This study attempts to estimate the magnitude of capital outflows from every country in Africa to the U.S. by evaluating every reported import and export transactions between African countries and the United States during the ten year period 1996 - 2005. The capital outflows from Africa to the U.S. grew significantly, from $1.9 billion in 1996 to $4.9 billion in 2005, through both low-priced export and high-priced import.
For some countries such as South Africa, Morocco, Ghana, Gabon, Botswana, Lesotho, Madagascar, Swaziland, and Namibia, capital outflows took place more through low-priced export than through high-priced import during 2000-2006 period. For some other countries such as Egypt, Algeria, Nigeria, Kenya, Ethiopia, Cameroon, Senegal, Guinea and Uganda, capital outflows took place more through high-priced import than through low-priced export.

Editor: Róbinson Rojas Sandford
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