Subsidiary A (in state with high corp tax) pays millions in "consulting fees" to same MNC's subsidiary B (in state with no corp tax), but the actual value of the consulting B delivers to A is negligible. Legal? Perhaps. But why are you so opposed to calling it "illicit"? Thanks!https://twitter.com/MForstater/status/1022821492017557504 …
Thanks for asking. The distinctions are a bit subtle for twitter, but I will try: (1) Your scenario doesn't sound legal or normal for big corps - it could be illicit (2) What big corps do in terms of BEPS is not this (3) What the indicator picks up is neither 1 or 2....<more..>
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(1) Yr scenario of invoicing yourself for fictious services sounds like tax fraud or money laundering (perhaps w fact of the other co being a related entity hidden) - that wld be illicit (but note: rare to hv tax treaties w zero tax jurisdictions, jurisdiction A wld charge WHT)
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(2) Legal tax planning by big corps includes transfer pricing defensible w/in arms length principle. Can be disagreements over value (or arguments for a different system), but superficial similarity w first scenario does not make it 'illicit'
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@ThomasPogge does that make sense? Does it lead you to reexamine assumptions about what does or doesn't fall under definition of illicit? -
I am thinking about how it makes sense to use this language, Maya, and very grateful for your help and also for the other responses my question has elicited. I hope we can work toward a clear, useful definition that's responsive to the real-world phenomena.
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