Global Financial Integrity

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Tagged ‘Tax Havens’

Transfer Pricing Lands Apple, Starbucks, and Fiat in Hot Water

Apple, Starbucks and Fiat in trouble over transfer pricing practices

Apple, Starbucks, and Fiat should prepare to pay their fair share of corporate taxes.

Last year, a U.S. Senate investigation accused Ireland of giving Apple special tax treatment. EU Antitrust Commissioner Joaquin Almunia has now gone further, initiating a probe of these large firms to determine whether the companies’ tax deals with Ireland, the Netherlands, and Luxembourg involve illegal state aid.

The investigations specifically examine the companies’ method of “transfer pricing”. Transfer pricing is simply the accounting practice by which one part of a multinational company charges another part for goods and services to distribute profits between jurisdictions. For large corporations such as Apple, Starbucks, and Fiat, the problem lies in the use of loopholes and creative interpretations of transfer pricing rules to artificially shift profits to countries where there are lower taxes or better tax breaks.

 

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Why Swiss Banks Can’t Be as Secretive in 2014 as 1934

UBS is a Swiss bank that was fined for banking secrecy crimes

Swiss banks can’t be as secretive today as they were many years ago. The World Won’t Let Them.

For years, secrecy jurisdictions such as Switzerland helped U.S. depositors use their own secrecy laws to avoid U.S. income taxes. Banking secrecy was firmly established in Switzerland in 1934 when it became a criminal offense to reveal a client’s identity. As a result, Swiss banks have helped hide around $2.1 trillion in offshore accounts. Today this is an increasingly unacceptable amount of money to hide away.

Since the 2008 financial crisis, banks in secrecy jurisdictions have faced increasing international pressures to make banking information more transparent. Such banks have been urged to take on the automatic exchange of information on bank accounts.

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Why Offshore Tax Havens Should Matter to Everyone

The Cayman Islands often function as tax havens for Fortune 500 companies.

Offshore tax havens impact everybody in the United States, raising the individual tax bills of each American citizen. In fact, every U.S. taxpayer had to pay approximately $1,259 extra on their tax bill this year due to lost...

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Russian Foreign Direct Investment and Tax Havens

It can be tough to impose economic sanctions against Russian citizens if you can’t find their money. Russia’s very complex relationship with tax havens could make this more difficult.

It is also tough to try to pinpoint exactly how much Russian money is being held in tax havens due to the fact that a lot of it isn’t reported to Russian officials/international organizations like the IMF (that’s the whole point of hiding your money in a tax haven).

The amount that is actually reported is pretty jaw-dropping. Approximately 61% of Russia’s $403 billion in outward Foreign Direct Investment (FDI) is held in tax havens:

Just to be clear, FDI is any amount of investment in a entity which gives the investor some  control over that entity’s operations. So, if a Russian billionaire incorporates an entity in Cyprus (often these entities in tax havens are just bogus “shell” entities), and invests $1,000,000 into the entity, that will show up in the FDI statistics.

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Tax Havens Are the Biggest Foreign Investor in the United States… Not China

There has been a lot of talk in recent years regarding the extent of China’s investment in the United States. Most of this has been centered on China’s admittedly large holdings of U.S. debt, but the fear has spilled over to other forms of investment as well. A 2012 report filed by the US-China Economic and Security Review Commission, an entity created by Congress in 2000, went as far as recommending that the Committee on Foreign Investment in the US be amended to add a required litmus test for Chinese investment, specifically. This test would make it mandatory to analyze the “net economic benefit” of all proposed Chinese investment in the United States before it is approved.

Being fair, a lot of this has to do with national security, with the rational that Chinese acquisitions of telecommunication companies (for example) might pose a threat to the “cyber and physical infrastructure services critical to maintaining the national defense, continuity of government, economic prosperity, and quality of life in the United States.” How much of this is legitimate I’m not sure of.

Still, does China own an outsized portion of US assets compared to the rest of the world? The short answer is no, not even close.

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