A recent Bloomberg article talked about Google and their incredible success at using transfer pricing. Transfer pricing is more than just shifting costs from one division to another. Creative use of transfer pricing allows multinational corporations to use tax haven countries to shelter profits from restrictive tax laws. Through a system of shell companies and creative pricing structures, Google is able to move it's profits to countries like Bermuda where there is no corporate income tax. It takes a complicated system of in-house accountants and bankers to keep all of the money accounted for and keep the transactions legal. However, all the extra time and effort is well worth it as a company the size of Google can literally save billions of dollars in tax liability. These practices are very common among large corporations. In fact, it is estimated that it costs the U.S. about $1.4 trillion in lost revenue. The fact that the U.S. has such high corporate tax rates is the reason that companies are motivated to go to such lenghts to avoid corporate taxes. It might be time for the U.S. to reevaluate its corporate tax structure to try to capture some of these lost revenues.
Posted by Rico at 11/07/2010 09:27:00 PM