I made this video a while away (I don't even recall those glasses!) but since I've been asked about transfer pricing and this seems to do the job I thought I'd put it up again:
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I can see your asking for open disclosure so that you can check the tax due but what about commercial secrecy. The company may not want its competitors or customers to know the extent of its profit or cost of manufacture, surely you can see that this is sensitive information when millions in global profits are at stake!
Not at all
Economic theory says markets work best when all is known
So secrecy only encourages inefficiency, monopoly abuse and the misallocation of resources
Indeed we ran our business very successfully providing customers with quotations on an “open-cost-basis”.
Every cost down to the last button was itemised.
Some of our more “secretive” competitors hated us and lost out.
Transparency is the name of the game.
IT ALWAYS PAYS!
With respect Richard, disclosure is only the begining. The OECD’s outdated philisophy of viewing a business as ‘controlled’ and therefore resident in a particular country, with permanent establishment’ profits arising in little pockets around the world is:
a) Too easy to manipulate given the ‘skills’ of the big 4 in setting up offshore holding structures
b) Based on the remains of european imperialism – western companies doing a bit of trade in former colonies (and repatriating profits back to the west).
c) Not a reflection of the international ownership of public companies
d) In a internet age, not a reflection of management being spread over different time zones, continents etc.
We now have an international framework for both financial reporting, and one for auditing. It is time for an OECD framework for apportioning profit based on the substance of where profits actually arise. I am sure this would be deeply unpopular with business, but without it we are simply in a race to the bottom on tax rates.
Sorry to go on, but one final thought: If EU companies relocating their head office to Ireland could only apportion a fair amount of their profits chargable to corporation tax to that country -Would Ireland have dropped their tax rates?
Would they have needed an EU bail out?
Would the UK, France, Germany etc have seen falling corporate tax takes to the extent they have?
Let me be clear – I propose country-by-country reporting, unitary taxation and the end of the arm’s length principle
But I discussed what is