Friday, August 24, 2012

Sheppard on transfer pricing: clumsy, sorry, and doomed

Lee Sheppard asks Is Transfer Pricing Worth Salvaging, and answers no: it is "the leading edge of what is wrong with international taxation."  She calls transfer pricing a "clumsy tool[] that affluent developed countries have used among themselves, to their collective detriment" and "a sorry vestige of a system that will be gone in 10 years."  She points to a series of factors that will kill transfer pricing as a going concern: resistance from the BRICs, Europe's move to combined reporting with formulary apportionment, social justice activists' increased scrutiny of and scorn for high profile tax dodging, and various prior failures of tax policy that have already allowed multinationals to exit from the tax system on a global basis.  She concludes:

Booking income from an intangible in a tax haven is not a fit subject for tax competition. Tax competition for foreign direct investment is honest competition. Tax competition for booking income is not. Poor little Ireland is still poor, despite the billions of dollars of multinationals’ income booked there. It was only booked there. It sloshed through Ireland on the way to somewhere else, and did not pave the dirt roads on its way out.

HT: TJN, which is hosting a copy of the column on their website.

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