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Get off Google’s tail

By Jonathan J. Ariel - posted Monday, 28 May 2012


He summarized his findings thus:

Source: Testimony of Martin A. Sullivan, Ph.D. , Economist and Contributing Editor at Tax Analysts, Committee on Ways and Means, U.S. House of Representatives, July 22, 2010

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Over the last decade the transfer pricing problem has gone from bad to very bad. Sullivan’s analysis shows that the degree of income shifting out of the United States has risen. From 1999 to 2007 foreign profits of U.S. multinationals ballooned by 163 percent while over the same period traditional indicators of economic activity have risen on average by only 97 percent. This excessive growth of foreign profits represents an annual revenue loss of US$28 billion over and above the revenue loss if transfer pricing rules were as effective as they were in 1999. Clearly the rules are either more accommodating to foreign offices of U.S. firms over time or U.S. firms harness them more effectively.

Furthermore, he revealed that 80 of America’s largest corporations show that in the period between 1997-99 and 2004-06, the average effective tax reported to shareholders declined by approximately four full percentage points.

While most of this decline was attributable to increasingly favorable tax treatment of foreign jurisdictions – such as corporate tax rates falling outside the United States - about a quarter of the decline in effective tax rates paid by U.S. firms was due to the legitimate use of transfer pricing.

How many billions in tax revenues is Australia losing thanks to transfer pricing? Has the Commonwealth Treasury measured it? Can the Productivity Commission look into the matter?

Should hard working PAYG taxpaying Australians give a damn about this legislated larceny? You bet.

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About the Author

Jonathan J. Ariel is an economist and financial analyst. He holds a MBA from the Australian Graduate School of Management. He can be contacted at jonathan@chinamail.com.

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