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Understanding "transfer pricing": how corporations dodge taxes through financial colonialism
Every day, the world's poorest countries lose $3b in tax revenues as multinationals sluice their profits through their national boundaries in order to avoid taxes in rich countries, and then sluice the money out again, purged of tax obligations thanks to their exploitation of tax loopholes in poor nations.
The secret to all this tax-dodging is a complex grift called "base erosion and profit shifting" (BEPS). Like many of the most important and dangerous things in the world, it's boring, complicated, and very important, and the reason it persists is that the boringness and complexity baffles and bores people so they stop paying attention to it, leaving it to chug along, despite its importance.
At its core, BEPS involves using bookkeeping fictions to transfer your profits to low-tax jurisdictions and your costs to high-tax jurisdictions. BEPS abuses "transfer pricing," which is the pricing of goods and service between multinational companies, by using prices of convenience for transactions within a single company's international divisions.
Here's how that works, in a real-world example detailed in an IRS lawsuit against Amazon, which is one of the world leaders in BEPS tax-avoidance. Amazon transfered all its "intellectual property" assets to a company called Amazon Lux, in Luxembourg, where taxes are very low. Then, every time Amazon's other divisions make a profit, they send that profit to Amazon Lux, which sends them an invoice for their use of Amazon's trademarks, software, etc. That way, Amazon's other divisions break even (or even lose money, if that makes them eligible for a tax-credit on the loss), and Amazon Lux makes all the company's profits in a tax-free jurisdiction (Luxembourg). Read the rest
Original Link: http://feeds.boingboing.net/~r/boingboing/iBag/~3/JNYpqy-lBA8/tax-avoidance-r-us.html