Monday, February 4, 2013

International tax as revealed in SEC filings

I've written before about how opaque international taxation is because most of the law is worked out in ways that are not made visible to the public, namely through non-judicial review of transfer pricing and related disputes among nations.  I've argued for both corporate tax disclosure and publication of competent authority agreements as a remedy to much of this opacity. Tax Analysts' Transfer Pricing Roundup [gated] offers a fascinating window onto this world:
Transfer Pricing Roundup summarizes significant tax disputes that publicly listed firms have disclosed to regulatory authorities. The regular monitoring of these disclosures sheds light on the friction points within the U.S. system of transfer pricing enforcement. Many of the disputes profiled here involve adjustments resulting from controversial cost-sharing arrangements.
Some of the highlights:

  • Accenture PLC, a global management consulting, technology services, and outsourcing company, reported its unrecognized tax benefits could decrease by $637k or increase by $208k depending on how things go with some settlements, lapses of statutes of limitations [read: if they were going to catch us with our fingers in a cooky jar, it's about to be too late] and other adjustments relating mostly to transfer pricing matters 
  • Amazon is disputing transfer pricing adjustments in the US that would result in additional tax of $1.5 billion, and in France to the tune of $250 million. 
  • Amazon also recorded reserves for tax contingencies of $336M for 2012 and $266M for 2011, to cover transfer pricing, state income tax, and research and development credit positions.
  • Cooper Cos. Inc., a medical device company, has $29.5M in "unrecognized tax benefit," $5M of which relate to transfer pricing and other issues "that could significantly change in the next 12 months because of expiring statutes [see above] in unnamed jurisdictions." 
  • Dell continues an ongoing battle with the IRS over transfer pricing adjustments dating back to 2004-2006. Dell reports that "An unfavorable outcome in this matter could have a material effect on the company's operations, financial position, and cash flows."
  • Microsoft is also involved in a protracted battle with the IRS over transfer pricing involving 2004 to 2006, which could have a "significant impact" on the company's financial statements if it is not resolved in Microsoft's favor. Microsoft does not expect resolution any time soon: must be some thorny issue to work out there. Microsoft's tax contingencies and liabilities are huge: $7.7B and $7.6B as of December 31, 2012, and June 30, 2012, respectively.
Much, much more at the link. Most of these are pharma and software companies--i.e., lots of IP that has been moved offshore and is busy stripping income out of high-tax countries with variations on the dutch sandwich, which looks a little something like this:
Now with Less Fiber!
My feeling is that it is a real shame that most or all of these cases will get settled and eventually quietly erased from balance sheets with little or no explanation and therefore no advancement in the development of international tax law whatsoever, despite all of the resources that will have been sunk into the cause by the private sector and government alike. What a shame.

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