October 19, 2014

Why is transfer pricing inherently an art?

On a recent episode of the popular TV show, The Good Wife, the main character Alicia Florrick (played by Julianna Margulies) states that she was drawn to the legal profession because the rules meant right and wrong was clear. Being a lawyer afforded her clarity and helped her understand right from wrong without ambiguity.

I like clarity. I like rules that tell me what’s right and what’s wrong. (…) I just wanted to be inside something made sense to me.” (Alicia Florrick, The Good Wife – Season 4, Episode 6)

And while I don’t agree the law is as black and white as Alicia would like to believe, I enjoy transfer pricing precisely because there is no black and white. There is almost never one answer. The right answer is almost always in a range of possibilities. My instinctive first response to most clients when they ask me a seemingly straightforward question is “it depends.”

October 7, 2014

Reputation and corporate taxation

When I started working in transfer pricing, it was rare to find anyone other than my colleagues who knew what transfer pricing was. It was rarer still to find many references to transfer pricing in the media. There were no TV shows starring tax geeks. No movies that explored the intricacies of international taxation.

But it has all changed now thanks to Starbucks, Apple and Amazon. So much so that a movie premiered at the Toronto International Film Festival this past month, exploring whether corporations are paying their fair share of tax. I haven't yet watched The Price We Pay but I do intend to get to it soon. 

The trouble really started as the world media got a whiff of high tech American multinationals' incredibly low effective tax rates in the international markets. The tech companies were the key culprits, using a mixture of Irish, Dutch and Barbados based tax structures (also known as the Double Irish with a Dutch Sandwich) to make their income disappear, tax less.

September 8, 2014

Does internationalization lead to innovation?

Export promotion programs, like EDC, have historically been based on the assumption that internationalization leads to greater innovation, higher productivity and above-average returns. In a recent article, Bill Currie of Deloitte Canada raised all of these arguments and more to encourage Canadian companies to look beyond their domestic markets. I believe he completely missed the mark.

While the statistical data would show that multinational Canadian companies experience higher growth rates and have higher productivity than their purely domestic peers, this is a case of misidentifying cause and effect. The multinational Canadian companies do

September 1, 2014

Why study the impact of taxation on investment location decisions?

The recent economic downturn and deficit challenges have focused political debate on revenue generation, and specifically corporate taxation, making international tax reform one of the most important areas of discussion on public policy. The Occupy movement, an international protest movement that first gained prominence in 2011 for its protests against the alleged corporate greed on Wall Street, has consistently pointed to the relatively low tax rates paid by large corporations as a prime reason for growing inequality and gap between the rich and the poor in the US and elsewhere around the world. In a recent paper on base erosion and profit shifting, OECD (2013) highlights what it considers the low share of corporate taxation in overall governmental revenues, at less than ten percent. Mandated by the Group of Eight (“G8”), Organisation for Economic Co-operation and Development (“OECD”) has expended a significant amount of effort over the last year in proposing recommendations for fixing what it describes as loopholes and gaps in the international tax system. The work done by OECD over the last year has been unprecedented in its scope, multilateral buy-in and the speed at which it is forging ahead to plug gaps that purportedly result in base erosion and profit shifting.