Transfer pricing explained

Transfer pricing explained, by the Nicholas Confessore of the New York Times:

What Oesterlund [a wealthy individual hiding assets during a divorce] had done is known as “transfer pricing,” a practice that has come under growing criticism in recent years. Multinational corporations use it to shift their costs to high-tax countries and their profits to low-tax countries. Often, there is little or no economic reality to these transactions. Apple, for example, is an American company headquartered in Cupertino, Calif. Most of the research and development that goes into an iPhone happens in California. But according to Apple, if you buy an iPhone in Europe or Asia, the intellectual-property rights contained in your phone actually belong to Apple subsidiaries in Ireland, where the company has negotiated for itself a special tax rate of around 2 percent. Apple charges those subsidiaries relatively little for the rights to this intellectual property, yet allows them to collect most of the money Apple makes from selling the phone. In 2011, the Irish subsidiaries — which conduct virtually none of Apple’s research and build few of its products — collected two-thirds of Apple’s 2011 worldwide pretax income.



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