After NAFTA, there are no
>tariffs to avoid, and it would seem the main purpose of book cooking would
>be to lower tax liability. But surely these corporations have finagled
>better tax deals in Mexico than in the US. No? In which case, it seems
>they should be cooking the books in the opposite direction, and imputing
>as much production to Mexico as possible in order to lower their overall
>tax liability. What am I missing here?
>
>Michael
Michael,
I think this is an excellent question, though you are indeed missing the first three reasons given for transfer pricing by Tang, according to Mehrene Laurdee and Tim Koechlin. Are you suggesting (quite plausibly) that tax avoidance should override the first three reasons?
>From my previous post:
"1. To recover the cost of investment quickly, to avoid political and currency exchange risks 2. To shift profits to the parent firms before sharing them with joint venture partners in the host country 3. To inflate the cost of tech and equipment transferred to the MNE affiliate to obtain a greater share of equity investment and to increase the costs of fixed and intangible assets for tax purposes [Gabriel Kolko has noted the same practice in Vietnam--rb] 4. To reduce tax liabilities by shifting profits to low tax jurisdications."
Tang's analysis here seems to be based on MNE operations in China. How (or whether) transfer pricing works in Mexico is obviously an important question. I will have to look up Tang's book to see if he has any relevant data.
thanks for attention to this important matter, rakesh