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View Diary: President Obama's Opening Move: Raise $1.6 Trillion In New Tax Revenue From The Wealthy (222 comments)

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  •  Transfer pricing (6+ / 0-)

    Needs to be addressed here, as seriously as it is addressed in China.  Right now its like a black hole with profits being offshored to China and other countries, and dictatorships like China especially don't play by the same rules - they don't permit any offshoring of profits from business operations within China.

    $100BN/yr in lost tax revenue according to CBS.  Most of the Fortune 100 does this, anyone that can open an office overseas does it.

    How does transfer pricing work ?

    Put simply, the parent company in the US "sells" a patent to a fully owned subsidiary in the desired country (e.g. China).

    Next, the wholly-owned subsidiary company in China sets a royalty price for every pound / gallon or whatever of the patented product.  Then, as the US parent sells the product domestically, it "pays" its wholly owned subsidiary a royalty for every barrel, pallet or gallon.

    Commonly, these royalty rates can be up to 90%, completing and intentionally moving all profits made by the parent company to the desired offshore fully owned subsidiary.

    These profits are then reported in the desired country, and typically taxed at a low rate.

    Often, the foreign country will have extended a tax-free period for the subsidiary to attract jobs.  This doesn't just happen in China either, Switzerland, Ireland and other countries play the same game.

    http://www.guardian.co.uk/...

    Government for the people, by the people

    by axel000 on Tue Nov 13, 2012 at 04:23:44 PM PST

    •  Wow - what a tax scam!! (2+ / 0-)
      Recommended by:
      TomP, happymisanthropy
    •  That's a very small slice of the Transfer Pricing (2+ / 0-)
      Recommended by:
      TomP, misslegalbeagle

      picture, and it's distorted.

      Transfer Pricing rules exist to prevent the scenario you describe.  They force the company to set an independent price for their intercompany transactions, and their internal price has to be comparable to the independent price.

      There are other ways to encourage multi-national companies to report more profits in the US, but tweaking the Transfer Pricing rules is the least effective.

      "If one cannot enjoy reading a book over and over again, there is no use in reading it at all." — Oscar Wilde

      by chicagobama on Tue Nov 13, 2012 at 05:18:47 PM PST

      [ Parent ]

      •  That sounds great in practice (1+ / 0-)
        Recommended by:
        happymisanthropy

        But I know that rule leaves a lot of leeway, from observation.

        Government for the people, by the people

        by axel000 on Tue Nov 13, 2012 at 07:05:22 PM PST

        [ Parent ]

        •  duh, meant in theory (1+ / 0-)
          Recommended by:
          happymisanthropy

          This is 2012, why does DKOS not have undo ?

          Government for the people, by the people

          by axel000 on Tue Nov 13, 2012 at 07:06:04 PM PST

          [ Parent ]

          •  Agree (0+ / 0-)

            I just think it's impossible to have air-tight Transfer Pricing rules.  There will always be some subjectivity to the process.

            But Transfer Pricing doesn't need reform.  Instead, we should work to make our tax environment more friendly to multinational companies so that there is no incentive to go overseas.

            "If one cannot enjoy reading a book over and over again, there is no use in reading it at all." — Oscar Wilde

            by chicagobama on Wed Nov 14, 2012 at 10:24:13 AM PST

            [ Parent ]

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