Transfer Pricing

Transfer Pricing is the technique that multinational companies use to ‘move’ their profits around to avoid tax.

For example if a company operates in the UK, and makes annual profits of £100m, then with corporation tax at 20% they should pay £20m tax per year. However if they open a small office in say Luxembourg, and come to an agreement with the government there to only pay 5% tax, then there is an incentive to move their UK profits to Luxembourg. This is done by, for example, getting the Luxembourg subsidiary to buy office supplies (pens, paper etc) and then selling those office supplies to the UK subsidiary for a charge of £100m. Suddenly the UK profits of £100m are wiped out by the cost of office supplies, while the Luxembourg office now has a £100m profit on the sale of those same supplies. Result? The profits have left the UK so there is no tax to pay here, while there is now only 5% tax on the fictitious £100m profit in Luxembourg. So the company saves itself £15m by only paying £5m tax instead of £20m, and more importantly the UK taxpayer is £20m worse off. (In this example Luxembourg is operating as a Tax Haven, offering preferential legislation in order to ‘steal’ other countries’ tax revenue. For more on the dreadful impact Tax Havens have on national economies click here.)

HK_Central_Mid-Level_Caine_Road_Starbucks_Coffee_Shop
Starbucks – somewhat laughably would have us believe its UK operations make no profit. Picture © JackieCheu

This technique is used so often it’s virtually common practice amongst multinationals, with devastating effects on the tax paying public of countries like Britain. This is the method Starbucks has been using for years to avoid paying tax in the UK, routing all their profits through Holland by claiming they have to make payments for ‘Patents’ and ‘Coffee Grounds’. On their UK turnover of £398m for the last financial year, it is estimated their actual profit was well over £50m, on which they should have paid about £15m tax, still way more than the £10m they’ve since been pressured into coughing up.

Share:

 

One thought on “Transfer Pricing

  1. Much of the world’s news provision is now owned and run by large organisations who follow a political agenda. There is a clear bias towards right wing politics as most of the world press take the side of business of whom they are a huge player. Because the main players own most of the resources, the quality of the digital news available is information from the political right. Smaller perhaps more fact based news providers are not able to provide higher news feeds with regularly revised graphics and writeups. Left Insider provides best news from major sources which enables readers to make their own choice about the truth and quality of the news. Also given on the Leftinsider online newspaper are links to media like The Canary, Huffington Post and the Morning Star as well as over 300 alternative news feeds. The news sites do not mainly have the quality of pictures that the bigger news providers offer but they do have a mixture of valid news features that provide plenty of facts for the informed reader. The intention of Left Insider is to offer a collection of News that is aimed to assist the social state of the planet instead of the riches of the already rich. The main belief is in the right of all individuals to have the opportunity to maximise their own potential plus to aid others with less opportunity to achieve theirs.

Leave a Reply

Your email address will not be published. Required fields are marked *