Friday, June 22, 2012

Transfer pricing: Neither Science nor Law

TJN quotes Fran├žois Vincent who says transfer pricing is systematically imprecise, not only not an exact science but not a science at all, and moreover, due to its systemic treatment through competent authority decision-making, constitutes "taxation by negotiation rather than taxation by legislation."  The latter is the main argument of my article, How Nations Share, forthcoming (draft here).  Vincent calls the outcome of taxation by negotiation "a secret body of law" but I maintain it is not really "law," at all.   By amalgamating the confidential experiences of the competent authorities of its member countries into "guidelines' and statements on best practices, the OECD functions as an institutional filter between the transfer pricing regime as it actually plays out and public perception about what the law should or does require.  That's no way to make law, but it is remarkably effective at influencing practice.  

Hobbes described "law" as having four core components: it must have certain institutional properties to create binding legal obligations: it must have a known author with recognized lawmaking authority; it must have authentic interpretation; and it must be made known to those subject to it.  (L xxvi. 8-23, 174-81).  The global transfer pricing regime lacks all four components.  That should be very troubling, as I argue in my paper, because it hides a very important legal regime--maybe even the most important tax law regime--from public view.  I am glad to see that people like Mr. Vincentwho know the regime inside and out, are beginning to acknowledge this as a big problem for global tax governance.


  1. Just to let you know Arthur Cockfield of Queens's University has a new working paper that references your work in several places. I do have note that Cockfield (a previous FATCA critic) spends about half the paper crictising FATCA. I wonder how that must of gone when he presented at the USC School of Law last week. One of my dreams is to get Cockfield on stage together with someone like Itai Greenberg or J. Richard Harvey to debate the issue. Cockfield seems to be the most prominent critics of FATCA outside of some bank secrecy "dead enders." I don't think at all Cockfield is a "bank secrecy" supporter in face he is anything but.

  2. I actually forgot in my previous post to give the actual link.

    He actually was interviewed in a recent Montreal Gazette article and in fact didn't speak all that well of the existing OECD information sharing model.

    But since the agreements are so novel, Queen's University tax law professor Arthur Cockfield said it is yet to be seen if there will be any real impact, especially since agreements to share info are useless if the country in question doesn't collect info.

    "I am skeptical that these TIEAs will bring in many revenues to Canada," Mr. Cockfield said. "Part of the problem is that, again, these tax havens don't have income tax systems, so the governments and even the banks don't keep the same kinds of records that our banks do."

    But Mr. Cockfield said multilateral agreements are preferential to unilateral laws that impose obligations on other nations, such as the U.S.-proposed Foreign Account Tax Compliance Act, which has received criticism in Canada.

    "I believe it's an illegal attempt to access tax information from Canadians. It doesn't comply with the Canada-U.S. tax treaty and it doesn't comply with the American obligations under NAFTA," he said.