They can "go after" all they want but there is no way they can force companies that are registered abroad to abide by US rules unless they invade Europe and force a change of law.
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Microsoft: SG's tax system is heavenly!
- Thread starter Confuseous
- Start date
They can "go after" all they want but there is no way they can force companies that are registered abroad to abide by US rules unless they invade Europe and force a change of law.
I believe it is beyond transfer pricing due to the broad use of internet.
In the past, the sales transaction was done locally, and transfer pricing was used.
Now, you can buy straight from a foreign company and the local company acts like a delivery agent. Sales is transacted outside the country.
Oh they have a dozen ways to squeeze the balls. Takes time but works all the time. Look at Swiss, wet their pants and provide all data to uncle sam, though they refuse to others.
Please kindly consider my 2 earlier replies. Paying franchise fees like paying royalties. So if you consider repatriating profits overseas as franchise fee payments, you are also liable for a high level of withholding tax in most legislations.
The situation there is slightly different. Those are criminal investigations.
Thanks for the replies. So no way for a small fry to pay less like how big corporates evade?
As long as you have companies registered in various jurisdictions, you can work the system. It does not matter how big or small you are.
Okie boss, will try to figure out.
OECD's guidelines "benchmark" transfer pricing (aka shifting profits to low tax havens). Tax planning, as opposed to tax avoidance (a no no from taxman), also avoids cross border double taxation. Even the Singapore taxman's catching up (despite non-OECD member).
Header extract from http://www.oecd.org/ctp/transfer-pricing/transfer-pricing-guidelines.htm.
Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations
The Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations provide guidance on the application of the "arm's length principle" for the valuation, for tax purposes, of cross-border transactions between associated enterprises. In a global economy where multinational enterprises (MNEs) play a prominent role, governments need to ensure that the taxable profits of MNEs are not artificially shifted out of their jurisdiction and that the tax base reported by MNEs in their country reflects the economic activity undertaken therein. For taxpayers, it is essential to limit the risks of economic double taxation that may result from a dispute between two countries on the determination of the arm’s length remuneration for their cross-border transactions with associated enterprises.
For our tiny red dot: http://www.oecd.org/ctp/transfer-pricing/transfer-pricing-guidelines.htm
And on cross border royalties, you get hit with default WHT (witholding tax) at source.
Header extract from http://www.oecd.org/ctp/transfer-pricing/transfer-pricing-guidelines.htm.
Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations
The Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations provide guidance on the application of the "arm's length principle" for the valuation, for tax purposes, of cross-border transactions between associated enterprises. In a global economy where multinational enterprises (MNEs) play a prominent role, governments need to ensure that the taxable profits of MNEs are not artificially shifted out of their jurisdiction and that the tax base reported by MNEs in their country reflects the economic activity undertaken therein. For taxpayers, it is essential to limit the risks of economic double taxation that may result from a dispute between two countries on the determination of the arm’s length remuneration for their cross-border transactions with associated enterprises.
For our tiny red dot: http://www.oecd.org/ctp/transfer-pricing/transfer-pricing-guidelines.htm
And on cross border royalties, you get hit with default WHT (witholding tax) at source.
You own a Singapore company that makes widgets. You subcontract manufacturing to China and it costs 2 cents per piece.
You sell these widgets in Australia for $5.
If you declare all your profit in OZ, you have to pay 30% tax on your profits.
In order to reduce your OZ profits, you ship the widgets to a Singapore subsidiary first. The Singapore subsidiary then sells them to your OZ outlets for $4.
In doing this you are booking most of the profit in Singapore where tax rates are half that of OZ so instead of making $4.98 profit per widget in OZ you're only making $1 profit.
I'm simplifying matters by ignoring overhead allocation etc but that is the gist of transfer pricing.
Many laws have been passed in an effort to combat this practice so you need a good tax accountant to advise you what you can or cannot do.
There is a concept in Taxation regarding the definition of where the revenue was generated.
If you applied VAT or GST in the midst of reselling a product(be it you are a buyer or seller), or provision of a service, effectively it is implied that you cannot deny that your revenue and profits were locally generated.
Another example of transfer pricing in layman's terms 
You sell oranges at $10 a dozen. Your aunt funds this little business. Then your aunt asks you to sell it to her so she can start an orange juice stall, but at a lower price or she won't fund you anymore.
So, you work out that you can sell it to her at $8 while still selling oranges outside also at $11. Now, imagine, to sell oranges you have to pay tax to your dad at 10 cents an orange regardless of whether you sell it to your aunt, or outside.
How do you figure it out which is more profitable for your business. Same goes for your aunt, she has to pay tax to your dad for every glass of juice she sells. To maximize your profit, as well as your aunt's put together, you need to find the perfect price to sell to your aunt, as the price at the market is more or less fixed as is the cost. The process to fix the price at optimum profitability is transfer pricing.
Transfer pricing is like telling a father that he must treat his child the same way he treats a stranger ("arms length").
You sell oranges at $10 a dozen. Your aunt funds this little business. Then your aunt asks you to sell it to her so she can start an orange juice stall, but at a lower price or she won't fund you anymore.
So, you work out that you can sell it to her at $8 while still selling oranges outside also at $11. Now, imagine, to sell oranges you have to pay tax to your dad at 10 cents an orange regardless of whether you sell it to your aunt, or outside.
How do you figure it out which is more profitable for your business. Same goes for your aunt, she has to pay tax to your dad for every glass of juice she sells. To maximize your profit, as well as your aunt's put together, you need to find the perfect price to sell to your aunt, as the price at the market is more or less fixed as is the cost. The process to fix the price at optimum profitability is transfer pricing.
Transfer pricing is like telling a father that he must treat his child the same way he treats a stranger ("arms length").
Thanks for info
Another example of transfer pricing in layman's terms
You sell oranges at $10 a dozen. Your aunt funds this little business. Then your aunt asks you to sell it to her so she can start an orange juice stall, but at a lower price or she won't fund you anymore.
So, you work out that you can sell it to her at $8 while still selling oranges outside also at $11. Now, imagine, to sell oranges you have to pay tax to your dad at 10 cents an orange regardless of whether you sell it to your aunt, or outside.
How do you figure it out which is more profitable for your business. Same goes for your aunt, she has to pay tax to your dad for every glass of juice she sells. To maximize your profit, as well as your aunt's put together, you need to find the perfect price to sell to your aunt, as the price at the market is more or less fixed as is the cost. The process to fix the price at optimum profitability is transfer pricing.
Transfer pricing is like telling a father that he must treat his child the same way he treats a stranger ("arms length").
Yours harder to understand than Boss Sam's but easier than the P5 birthdate qn of the play-hard-to-get Sinkie gal
Still, I don't know the answer :p
Indonesians and Malaysians have been doing this since the 1970's. Register sales of their palm oil, timber, rubber gas, coal manufactured products in Singapore and remit balance just enough for working capital. This probably explain huge gulf in wealth.
Markets | Sat Apr 11, 2015 10:02pm EDT Related: STOCKS, MARKETS, BASIC MATERIALS, ENERGY
Commodity giants' Singapore trading hubs under fire in tax probes
* Australia, Indonesia fear Singapore hubs used to avoid tax
* Top two global miners had $50 bln 2013 sales in Singapore
* BHP say business reasons, not tax, the primary driver
* Companies enjoy proximity to growing community of traders
By Rachel Armstrong
SINGAPORE, April 12 (Reuters) - The Singapore trading hubs of the world's largest commodity companies are coming under scrutiny from the governments of some resource-producing countries who say they suspect they are using units in the Southeast Asian financial centre to avoid tax.
Some of the world's largest oil, mining and soft commodity companies book billions of dollars of revenue in the tiny island state every year, where tax rates can be very low, which is perfectly legal unless they deliberately underprice group transactions so as to shift profit there from units in other countries.
The companies deny any improper transfer pricing and say they are in Singapore to be closer to Asian clients, to local expertise and trade routes, as the region accounts for a growing share of their business.
The world's two largest miners, BHP Billiton and Rio Tinto , between them booked close to $50 billion in revenue in Singapore in 2013, according to documents from the country's corporate registry, and posted a combined net profit of more than $2 billion.
They mostly conduct trading operations there, a high-volume, low-margin business that involves buying up commodities from their global operations and selling them on to clients. They also look after logistics and risk management.
The companies say their Singaporean operations were not set up to cut tax but to serve their clients better.
Australia and Indonesia's tax authorities say they are investigating whether arrangements like these simply shift profits away from where the commodities are extracted. Most jurisdictions require such arrangements to have a commercial purpose beyond saving tax, and the group transactions should be conducted at arms-length pricing. Australia and Indonesia both rely heavily on mining exports and count global miners among their biggest taxpayers.
Australia's tax office has said it is conducting audits of 15 marketing hubs in Singapore and Switzerland that it says it expects will raise an extra $1 billion. It has not identified the companies involved, although BHP and Rio told an Australian Senate hearing on Friday that their Singapore units were being audited.
"Quite clearly, we are in dispute with a number of taxpayers," Australian Taxation Office Commissioner Chris Jordan told a Senate hearing on Wednesday.
Indonesia's tax office head, Sigit Priadi Pramudito, told Reuters recently that the transfer pricing arrangements of commodity companies were a particular concern, but he did not identify specific companies.
"Say a company sells with a cheap price to Singapore, and then sells from Singapore to the world, where would the profit be? In Singapore, right? And where's the money? In Singapore, right? What does Indonesia get? Nothing," he said.
Resource-producing countries do typically raise taxes on resource extraction through royalties, said Harvey Koenig, tax partner at KPMG in Singapore. But he added "there are still various concerns from producer countries that a major part of the profits is not being retained in those countries," without commenting on any specific company or investigation.
TRADING PLACES
Singapore has long been a global hub for oil trading, complementing its big refining industry and operational centres for a number of oil majors, but in recent years, miners and other commodity firms have also moved to the Southeast Asian island.
In 2012, BHP shut its marketing office in the Netherlands and consolidated all its metal trading operations in Singapore. It says it employs around 400 people there.
It operates much of its marketing operations in Singapore through the branch of an entity set up in the Swiss town of Baar - BHP Billiton Marketing AG.
In the 2013-14 financial year, the branch had revenue of $38.6 billion, a profit of $1 billion and a tax rate of zero, according to accounts filed in Singapore. The accounts of the branch's Swiss parent are not publicly available.
BHP said it pays income tax in Australia on a "substantial portion of the revenue" that the hub earns.
"BHP Billiton is the largest taxpayer in Australia and takes its tax obligations very seriously," it said.
Rio told a Senate hearing in Australia on Friday that the work it undertakes in Singapore could not be sensibly undertaken elsewhere.
"Singapore is seen as a neutral location between buyer and seller," Rio's Australia managing director Phil Edmands told the Senate panel.
The companies benefit from being located near a growing community of commodity traders, with the likes of Trafigura, Gunvor, Cargill and Vitol all basing trading hubs there.
Under Singapore's Global Trader Programme, companies can get a concessionary tax rate as low as 5 percent if they conduct a substantial enough volume of business, base high-ranking staff on the island and make use of the country's financial services sector.
Larger companies can privately negotiate an even lower rate.
Rio said it receives a 5 percent tax rate in Singapore, while BHP declined to say what incentives it receives.
Singapore's Ministry of Finance said there were many business reasons for commodity companies to operate in Singapore, including its "developed network of shipping and logistics players, financiers and legal practitioners", while "tax incentives are given to companies with substantive economic activities that will significantly add value to our economy". (Additional reporting by Gayatri Suroyo in Jakarta, Sonali Paul in Melbourne and Swati Pandey in Sydney; Editing by Will Waterman)
http://www.reuters.com/article/2015/04/12/singapore-tax-idUSL4N0WE3Y620150412
Commodity giants' Singapore trading hubs under fire in tax probes
* Australia, Indonesia fear Singapore hubs used to avoid tax
* Top two global miners had $50 bln 2013 sales in Singapore
* BHP say business reasons, not tax, the primary driver
* Companies enjoy proximity to growing community of traders
By Rachel Armstrong
SINGAPORE, April 12 (Reuters) - The Singapore trading hubs of the world's largest commodity companies are coming under scrutiny from the governments of some resource-producing countries who say they suspect they are using units in the Southeast Asian financial centre to avoid tax.
Some of the world's largest oil, mining and soft commodity companies book billions of dollars of revenue in the tiny island state every year, where tax rates can be very low, which is perfectly legal unless they deliberately underprice group transactions so as to shift profit there from units in other countries.
The companies deny any improper transfer pricing and say they are in Singapore to be closer to Asian clients, to local expertise and trade routes, as the region accounts for a growing share of their business.
The world's two largest miners, BHP Billiton and Rio Tinto , between them booked close to $50 billion in revenue in Singapore in 2013, according to documents from the country's corporate registry, and posted a combined net profit of more than $2 billion.
They mostly conduct trading operations there, a high-volume, low-margin business that involves buying up commodities from their global operations and selling them on to clients. They also look after logistics and risk management.
The companies say their Singaporean operations were not set up to cut tax but to serve their clients better.
Australia and Indonesia's tax authorities say they are investigating whether arrangements like these simply shift profits away from where the commodities are extracted. Most jurisdictions require such arrangements to have a commercial purpose beyond saving tax, and the group transactions should be conducted at arms-length pricing. Australia and Indonesia both rely heavily on mining exports and count global miners among their biggest taxpayers.
Australia's tax office has said it is conducting audits of 15 marketing hubs in Singapore and Switzerland that it says it expects will raise an extra $1 billion. It has not identified the companies involved, although BHP and Rio told an Australian Senate hearing on Friday that their Singapore units were being audited.
"Quite clearly, we are in dispute with a number of taxpayers," Australian Taxation Office Commissioner Chris Jordan told a Senate hearing on Wednesday.
Indonesia's tax office head, Sigit Priadi Pramudito, told Reuters recently that the transfer pricing arrangements of commodity companies were a particular concern, but he did not identify specific companies.
"Say a company sells with a cheap price to Singapore, and then sells from Singapore to the world, where would the profit be? In Singapore, right? And where's the money? In Singapore, right? What does Indonesia get? Nothing," he said.
Resource-producing countries do typically raise taxes on resource extraction through royalties, said Harvey Koenig, tax partner at KPMG in Singapore. But he added "there are still various concerns from producer countries that a major part of the profits is not being retained in those countries," without commenting on any specific company or investigation.
TRADING PLACES
Singapore has long been a global hub for oil trading, complementing its big refining industry and operational centres for a number of oil majors, but in recent years, miners and other commodity firms have also moved to the Southeast Asian island.
In 2012, BHP shut its marketing office in the Netherlands and consolidated all its metal trading operations in Singapore. It says it employs around 400 people there.
It operates much of its marketing operations in Singapore through the branch of an entity set up in the Swiss town of Baar - BHP Billiton Marketing AG.
In the 2013-14 financial year, the branch had revenue of $38.6 billion, a profit of $1 billion and a tax rate of zero, according to accounts filed in Singapore. The accounts of the branch's Swiss parent are not publicly available.
BHP said it pays income tax in Australia on a "substantial portion of the revenue" that the hub earns.
"BHP Billiton is the largest taxpayer in Australia and takes its tax obligations very seriously," it said.
Rio told a Senate hearing in Australia on Friday that the work it undertakes in Singapore could not be sensibly undertaken elsewhere.
"Singapore is seen as a neutral location between buyer and seller," Rio's Australia managing director Phil Edmands told the Senate panel.
The companies benefit from being located near a growing community of commodity traders, with the likes of Trafigura, Gunvor, Cargill and Vitol all basing trading hubs there.
Under Singapore's Global Trader Programme, companies can get a concessionary tax rate as low as 5 percent if they conduct a substantial enough volume of business, base high-ranking staff on the island and make use of the country's financial services sector.
Larger companies can privately negotiate an even lower rate.
Rio said it receives a 5 percent tax rate in Singapore, while BHP declined to say what incentives it receives.
Singapore's Ministry of Finance said there were many business reasons for commodity companies to operate in Singapore, including its "developed network of shipping and logistics players, financiers and legal practitioners", while "tax incentives are given to companies with substantive economic activities that will significantly add value to our economy". (Additional reporting by Gayatri Suroyo in Jakarta, Sonali Paul in Melbourne and Swati Pandey in Sydney; Editing by Will Waterman)
http://www.reuters.com/article/2015/04/12/singapore-tax-idUSL4N0WE3Y620150412
it is legal. Top Japanese and European consumer electronics company do the same. The Japanese goes through shell companies in HK or other jurisdictions to reduce their tax in Japan. The same shaver from an European brand might have more than 20 prices within the company for invoicing purposes between subsidiaries and associated companies.
Perhaps in the course of my work, only the Korean govt whack their corporations and citizens hard for tax-avoidance (not tax-evasion). Now the Koreans diligently stay low-profile with their wealth; we may see a lot of mega Korean conglomerates like samsung, SK, LG, Hyundai, Lotte, but their owners are rarely ranked among the richest in the world with to the lack of data.
Transfer pricing can be both legal (tax-avoidance) and illegal (tax-evasion).
There are no hard and fast rules to differentiate them.
It depends on whether you got good lawyers.
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