Transfer pricing is where a company sells its goods and services internally within businesses and
between subsidiaries operating under the same control/ownership. a This amount is usually in
accordance with the market price for the goods or services. a When they do not charge the market
price and choose to charge less than the market price, they can shift the income from one company
to the subsidiary, which may be in a lower tax country, thus reducing the amount of taxes they
would have to pay. a Section 482 states that these types of transactions should yield the same
results as it would have realized if the transaction under the same circumstances with an
uncontrolled party would have been. a If these transfers are not valued correctly, financial
statements may need to be restated and penalties or fees could be applied for the misstatement. a
Corporate profits are to be taxed in the jurisdiction that the economic value is created. a
If this is done appropriately and the values are in accordance with the market value, I do not see a
problem with a company doing this. a It is when a company finds a loophole and exploits it to evade
taxes that there is a problem. a In the article we read “What Facebook and Apple can teach you
about transfer pricing”, the issue Facebook is facing is that the IRS is questioning the price Facebook
valued their non-U.S. and Canada IP use as. a This can be tricky to determine and where Facebook
must prove they appropriately valued the price. a Facebook might not have done anything wrong,
their transfer pricing just raised suspicion from the IRS to investigate it and come up with a
different conclusion. a Facebook is within its rights to disagree and appeal the IRS decision and go
before the tax courts; especially if they have appropriately documented their figures and have not
maliciously tried to evade taxes.
Transfer pricing is the pricing that exists between corporate related party international transactions.
This happens when a corporation transfers the value of an asset to a lower tax jurisdiction.
According to Worstall (2016), "when those foreign rights are sold, they must be sold at full
value...you must sell them at the full value to your foreign subsidiary, the income you get from that
sale becomes a taxable profit inside the U.S." (Worstall, 2016).
ADP as a Franchise Implementation Specialist, where I teach small business owners how to run
their own payroll with ADP's RUN software. a also trying to establish my own practice providing
bookkeeping, tax preparation, and mobile notary services as a source of side income. I know that
this course will be a valuable resource for expanding my tax knowledge and becoming a better
service provider to my clients.
After reading the article, I strongly agree with Stiglitz. I am aware that I have personal bias and
ideology that make my position on this quite rigid. I personally feel that corporations should not
have the ability to avoid paying tax using loopholes and moving money around. In my eyes I see
this as little more than money laundering. Worstall mentions that the purpose of the tax system is
to tax corporations and profits where the economic activity takes place. Between these lines I can
almost hear him say in the same breath that the purpose of a corporation is to maximize the
wealth of its shareholders. I fundamentally disagree; I believe the purpose of the tax system is to
fund the government, which is responsible for supporting, maintaining, and improving the quality
of life for its citizens. I believe the purpose of a corporation should be to maximize the wealth of
ALL the individuals who participate in its existence rather than exploiting the labour of the lowest
paid employees, and to serve a social purpose beyond shareholder wealth.
All of this is to say that I do not believe transfer pricing is ethical. (I hardly think tax avoidance is
ethical, either). Yes, there are certainly international corporations that have global operations and
there needs to be a way for them to organize their income and avoid double taxation. But it is too
easy to be used unethically by corporations that are just avoiding taxes, not purposefully producing
goods and services in other countries.
Worstall, T. (2016, July 29). What Facebook and Apple can teach you about transfer pricing. Forbes.
https://www.forbes.com/sites/timworstall/2016/07/29/facebooks-fun-with-transfer-pricing-and-joe-
stiglitz-doesnt-understand-apples-tax-at-all/?sh=4bc817763838
Worstall, Tim (July 29, 2016). a What Facebook and Apple can teach you about transfer pricing.
https://www.forbes.com/sites/timworstall/2016/07/29/facebooks-fun-with-transfer-pricing-and-joe-
stiglitz-doesnt-understand-apples-tax-at-all/?sh=586602783838
