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No it's not complying with any law. For example, Germany car exporters do not pay corporation tax on the _whole_ supply chain profit in the countries where sal
by derriz 7y ago
No it's not complying with any law. For example, Germany car exporters do not pay corporation tax on the _whole_ supply chain profit in the countries where sales are ultimately made.
Of that example $800 retail price, the cost break down (I'm making up these figures) might look something like: $80 German sales tax, $50 for the German retail outlet, $30 Germany logistics and distribution, $50 Ireland internationalization and packaging, $70 Chinese manufacturing, $250 USA engineering and development.
I don't see why you feel the correct thing would be for Germany to tax all of the $300 profit, given Ireland, China and particularly the US contributed far more to the value of the finished product.
This idea - when a product or service involves international supply chains - that the profit is taxable based on where the value was created has been the basis of interational trade. And there are huge bodies of work and accounting rules on how corporations are allowed to split that $800 up among all the countries involved in the supply chain.
- mytailorisrich 7y agoYou mentioned profits in Germany, now you're talking about the whole supply chain's profit or cost... It's difficult to follow your argument. The issue, which I explained, is that they can set prices along the supply chain to arbitrarily end up with 0 profit in Germany (following your example) and all the profit with a notional trading or licensing subsidiary located where tax is lowest.
- derriz 7y agoIf it's difficult to follow my argument that's my fault. I should have been more clear about the distinction between "profits on sales in Germany" and "profits made by the German operation". The $300 is the (global) profit on the sale in Germany. The profit made by the German operation would be relatively small in this case - assuming for example that the Germany operation is purely involved in logistics and retail. These type of operations are quite low margin. It is simply not the case that corporations can arbitrarily set the prices along the supply chain for accounting purposes. There are decades of international tax case law to determine where profits can be assigned in a global supply chain. Transfer pricing is governed very strictly. Clearly, in this example, the German logistics and retail can only claim a very small proportion of the value - given that typically their profits are single digit percentages. The US can claim nearly all of it since it's US engineering which adds the most value (like German engineering adds the most value to a car sold in the US).
- mytailorisrich 7y ago> It is simply not the case that corporations can arbitrarily set the prices along the supply chain for accounting purposes. And yet the reality is that all those companies report virtually zero profit in countries like the UK, France, Germany, etc. I feel you are clutching at straws here.
- derriz 7y agoLogistics and distribution are low margin operations and so make small profits and so pay small amounts of corporation tax. If the operations of Apple, say, in those countries are mostly logistics and distribution, then the profits of those subsidiaries will be low. By international tax law your German subsidiary cannot charge $200 per iPhone to bring it from a port warehouse to a retail outlet. It can only book a "reasonable" or arms-length profit for it's part of getting an iPhone into the hands of a consumer. Re. clutching at straws - it doesn't contribute much to offer guesses about how confident I am with my arguments. If I were not happy with my case, I would not be putting it into writing.
- mytailorisrich 7y agoLogistics and distribution in Germany is irrelevant. What happens is that the product is re-sold from one subsidiary to the next in a way that allows to effectively locate profits arbitrarily. It is avoiding to look at reality to claim that it must be that these companies report no profits in the countries I mentioned. The reality is that this is done on purpose by clever schemes.