Routine Transfer Pricing Is Not Tax Evasion, Company Executives Say

During Bloomberg BNA and Baker & McKenzie's transfer pricing conference in Paris last month, tax executives spoke about the growing problem of reputational risk and the tendency of the general media to equate routine transfer pricing with tax evasion. As one panelist pointed out, the corporate community has remained relatively silent on the issue. Below is an excerpt from the story (by BBNA's Paris correspondent Rick Mitchell) in today's issue of Transfer Pricing Report.

 

PARIS—A panel of experts including tax officials from three multinational companies spoke out recently about the challenges of operating in an environment where transferpricing, defined by most large companies as complying with the international arm's-length standard, increasingly is characterized as tax evasion.

“There has been a lot of sensationalist press [claiming] that if companies engage in routine transferpricing, which every multinational must, or in routine tax planning, that they are somehow not a good corporate citizen,” said Melinda Phelan of Baker & McKenzie in Houston. Transferpricing, which is simply part of a multinational company's day-to-day operations, should not be characterized as a “polar opposite” of following the law, she said. 

Phelan made her remarks during a March 12 panel discussion featuring executives from Reed Elsevier, Becton Dickinson, and Whirlpool that addressed reputational risk as one of the challenges multinational companies face. In the closing session of Bloomberg BNA and Baker & McKenzie's transferpricing conference, the panelists called on tax experts at multinational companies to engage with both those leveling criticism at the corporate community as a whole and those making business decisions within a company. 

Major multinational corporations in recent months increasingly have found themselves on the defensive as several countries, in some cases in televised hearings, have taken internet giants and other companies to task for paying relatively little tax in their jurisdictions although they allegedly earn significant profits in these countries. 

Opening the Paris conference March 11, Pascal Saint-Amans, head of tax policy at the Organization for Economic Cooperation and Development, noted that the Group of 20 countries has asked the organization to develop an action plan by July to address concerns that some companies are gaming OECD tax and transferpricing rules to shift profits away from jurisdictions where those profits were generated. 

In February, the OECD submitted a report on base erosion and profit shifting (BEPS) to the Moscow meeting of G-20 finance ministers addressing these concerns. 

In televised hearings in November 2012, the U.K. Parliament's Public Accounts Committee grilled executives from Google, Amazon, and Starbucks over their transferpricing policies, suggesting the companies were engaged in shifting income out of the United Kingdom to tax havens. 

During the March 12 panel discussion in Paris, Paul Morton, head of group tax at Reed Elsevier U.K., said companies should work together to counter “extreme views on the behavior large corporates.” Those holding these views, he said, “are very audible and persuasive and the general public and others find them very credible.” 

At the same, despite the mounting criticism, “the corporate community tends to be very quiet. We produce our annual reports, which no one has the remotest chance of understanding, and all sorts of other documents which are utterly incomprehensible to the man on the street,” he said. 

 

The June 5-6 conference in Washington, D.C., also offers a panel on this topic. To check out the agenda, visit http://www.bna.com/conference-m17179870521/.

Molly Moses, Managing Editor, Transfer Pricing Report