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Profit-sharing and transfer pricing AN OUTSIDERS VIEW Ken Fuller 12/21/2010

Tuesday, December 21, 2010

Profit-sharing and transfer pricing

AN OUTSIDERS VIEW
Ken Fuller
12/21/2010
Two weeks ago, this column noted how, despite an economic crisis, US corporations are raking in higher profits than ever. Today, we’ll take a look at how some US-based transnational corporations (TNCs) make a killing by setting up subsidiaries in overseas tax havens. This may, as we’ll see, have implications for the Philippines.

Most of the following information is taken from an article entitled “Ireland top location for US Multinational Profits” on the Irish business site www.finfacts.com. Based partly on two studies conducted by Martin Sullivan (previously a US Treasury Department economist) in the US journal Tax Notes in 2004, this reveals that US subsidiaries in Ireland (pop. 4.5 million) doubled their profits, from $13.4 billion to $26.8 billion, from 1999 to 2002. In Bermuda (pop. 66,000) over the same period, such profits tripled, rising from $8.5 billion to $25.2 billion, making them the two most profitable locations for US business. Believe it or not, the 2002 profit-figure for Bermuda was achieved on the back of income of just $34.3 billion.

Given the size of these two countries, such huge profits obviously do not all arise from productive activity. In fact, the article claims that the boost in profits was not related to increased economic activity. How, then, can this phenomenon be explained?.... MORE

SourceThe Daily Tribune

URL: http://www.tribuneonline.org/commentary/20101221com2.html

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