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Here's a well-known Canadian Supreme Court case about transfer pricing that highlights the role of a Swiss subsidiary in a scheme to dramatically reduce taxes o

Here's a well-known Canadian Supreme Court case about transfer pricing that highlights the role of a Swiss subsidiary in a scheme to dramatically reduce taxes on income earned from selling pharmaceuticals: https://en.wikipedia.org/wiki/Canada_v_GlaxoSmithKline_Inc https://en.wikipedia.org/wiki/Canada_v_GlaxoSmithKline_Inc

jomamaxx 10y ago
Transfer pricing is not 'tax evasion' - it's 'tax avoidance'. To be clear, 'tax evasion' is illegal. Most companies do what they can to avoid paying taxes, which is rational in some ways, but they usually don't do anything illegal. It's important that we don't mix the two :)
- woah 10y ago
  What's the difference? Does 'tax evasion' involve falsehoods?
  - rfrey 10y ago
    Tax avoidance is legal - it's reducing your income through legal means. Where it gets prickly is when companies game the system and find ways to reduce tax that the sovereign clearly would outlaw, but cannot for structural or political reasons. Still not illegal, but not exactly awesome either.
  - jomamaxx 10y ago
    The 'difference' is one is illegal. If you have $1M in a Swiss bank account earning capital gains, and don't declare it to the IRS - that's 'tax evasion'. If you have a company in Switzerland generating revenue, and decide not to bring back your profits to America to get hit with another tax, and just let it sit in Switzlerland - that's a 'tax avoidance' strategy. 'Tax evasion' = illegal. 'Tax avoidance' = doing everything you can within the boundaries of the law to not pay taxes. There are some wierd loopholes due to the way taxation works across borders.
  - mike_hearn 10y ago
    Yes, tax evasion involves lying to the tax authorities. Tax avoidance does not. It involves complete honesty with the tax authorities, who then charge you less tax, as the rules state they should. The definition of "avoidance" is therefore intensely political - avoidance tends to be defined as lawful behaviour by other people the speaker would prefer paying for government instead of them!
- __jal 10y ago
  Important to whom? I intentionally do not make a distinction. I'm not going to start, because the point is important to me. The distinction matters to: decision-makers at the firm in question, shareholders of the firm in question, the sovereign collecting the taxes[1]. And given the the dispute resolution with large corps' tax issues rarely involves people going to jail or even admissions of fault, I'm not sure why anyone outside of that group should care about the (extremely blurry) legality boundaries. Bottom line: most of the rest of us have no obligation to care about their word-choice sensitivities and are free to use language for our own ends. [1] Possibly noninclusive list.
  - rfrey 10y ago
    Well, you have to draw a line somewhere between ethical tax minimization and unethical tax evasion. Where do you draw it? This is a continuum that stretches from clearly illegal schemes through hazy waters, into calm water like deducting salaries and cost of goods sold from revenue and paying tax on the balance. For individuals "tax avoidance" includes deducting charity contributions and taking advantage of things like deductions for dependents. If that is not "unethical" to you then you need to make a distinction between tax avoidance and tax evasion. Many people believe "is it legal" is a good line to use. You may differ on that, but you can't escape the dichotomy.
  - jomamaxx 10y ago
    "Important to whom?" Important to lawful civilizations. If you think that there should be better regulations around setting transfer pricing, then vote for it. Unless companies are breaking the law, then there is a very profound 'distinction'. Some tax issues are easily resolved, or at least, easily improved. 'Transfer pricing' is not one of them. It's very thorny. I for one think that Apple's argument of 'the innovation and design is done in California - not Ireland' - is pretty reasonable. Im fact - the US government should be reaping most of the tax dollars that Apple generates, not Ireland. That said - if they have operations in Ireland they should be paying taxes there. I think that a company should pay it's 'primary corporate tax' in the place where it is incorporated and has it's major operations. And then ancilliary countries like Ireland can tax them at a corporate rate, but discounted for what they payed in America. Ireland's biggest tax receipts from Apple should come from VAT - which is the fairest tax of them all, because it's applied to each iPhone sale in Ireland, not France or wherever. Currently - it's upside down: if a Canadian company has a subsidiary in France, they pay their corp tax rate in France for sales there - and then only a 4% remittance fee to Canada. To me that's backwards. The American system is the worst: American companies pay full tax overseas - and then full tax back in America. Plus American corporate taxes are high.
- a3camero 10y ago
  This case was actually about whether or not it was legal. It was a mixed decision (seen as being in favour of GlaxoSmithKline) that settled confidentially after the Supreme Court case: http://business.financialpost.com/legal-post/glaxosmithkline-transfer-pricing-case-settled http://business.financialpost.com/legal-post/glaxosmithkline...

jomamaxx 10y ago

Transfer pricing is not 'tax evasion' - it's 'tax avoidance'. To be clear, 'tax evasion' is illegal. Most companies do what they can to avoid paying taxes, which is rational in some ways, but they usually don't do anything illegal. It's important that we don't mix the two :)

woah 10y ago
What's the difference? Does 'tax evasion' involve falsehoods?
- rfrey 10y ago
  Tax avoidance is legal - it's reducing your income through legal means. Where it gets prickly is when companies game the system and find ways to reduce tax that the sovereign clearly would outlaw, but cannot for structural or political reasons. Still not illegal, but not exactly awesome either.
- jomamaxx 10y ago
  The 'difference' is one is illegal. If you have $1M in a Swiss bank account earning capital gains, and don't declare it to the IRS - that's 'tax evasion'. If you have a company in Switzerland generating revenue, and decide not to bring back your profits to America to get hit with another tax, and just let it sit in Switzlerland - that's a 'tax avoidance' strategy. 'Tax evasion' = illegal. 'Tax avoidance' = doing everything you can within the boundaries of the law to not pay taxes. There are some wierd loopholes due to the way taxation works across borders.
- mike_hearn 10y ago
  Yes, tax evasion involves lying to the tax authorities. Tax avoidance does not. It involves complete honesty with the tax authorities, who then charge you less tax, as the rules state they should. The definition of "avoidance" is therefore intensely political - avoidance tends to be defined as lawful behaviour by other people the speaker would prefer paying for government instead of them!
__jal 10y ago
Important to whom? I intentionally do not make a distinction. I'm not going to start, because the point is important to me. The distinction matters to: decision-makers at the firm in question, shareholders of the firm in question, the sovereign collecting the taxes[1]. And given the the dispute resolution with large corps' tax issues rarely involves people going to jail or even admissions of fault, I'm not sure why anyone outside of that group should care about the (extremely blurry) legality boundaries. Bottom line: most of the rest of us have no obligation to care about their word-choice sensitivities and are free to use language for our own ends. [1] Possibly noninclusive list.
- rfrey 10y ago
  Well, you have to draw a line somewhere between ethical tax minimization and unethical tax evasion. Where do you draw it? This is a continuum that stretches from clearly illegal schemes through hazy waters, into calm water like deducting salaries and cost of goods sold from revenue and paying tax on the balance. For individuals "tax avoidance" includes deducting charity contributions and taking advantage of things like deductions for dependents. If that is not "unethical" to you then you need to make a distinction between tax avoidance and tax evasion. Many people believe "is it legal" is a good line to use. You may differ on that, but you can't escape the dichotomy.
- jomamaxx 10y ago
  "Important to whom?" Important to lawful civilizations. If you think that there should be better regulations around setting transfer pricing, then vote for it. Unless companies are breaking the law, then there is a very profound 'distinction'. Some tax issues are easily resolved, or at least, easily improved. 'Transfer pricing' is not one of them. It's very thorny. I for one think that Apple's argument of 'the innovation and design is done in California - not Ireland' - is pretty reasonable. Im fact - the US government should be reaping most of the tax dollars that Apple generates, not Ireland. That said - if they have operations in Ireland they should be paying taxes there. I think that a company should pay it's 'primary corporate tax' in the place where it is incorporated and has it's major operations. And then ancilliary countries like Ireland can tax them at a corporate rate, but discounted for what they payed in America. Ireland's biggest tax receipts from Apple should come from VAT - which is the fairest tax of them all, because it's applied to each iPhone sale in Ireland, not France or wherever. Currently - it's upside down: if a Canadian company has a subsidiary in France, they pay their corp tax rate in France for sales there - and then only a 4% remittance fee to Canada. To me that's backwards. The American system is the worst: American companies pay full tax overseas - and then full tax back in America. Plus American corporate taxes are high.
a3camero 10y ago
This case was actually about whether or not it was legal. It was a mixed decision (seen as being in favour of GlaxoSmithKline) that settled confidentially after the Supreme Court case: http://business.financialpost.com/legal-post/glaxosmithkline-transfer-pricing-case-settled http://business.financialpost.com/legal-post/glaxosmithkline...