The point of eliciting guesses is 1. To aid understanding of what lies between disagreements and 2. To provide benchmarks so to people know if evidence emerges that contradicts their priors.
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Replying to @CarterPaddy @hselftax and
OK Paddy I’m going to try to demonstrate why I don’t think this question is all that meaningful (or at least why if you ever have an audience with an omniscient god it would be a waste to ask her this one…) (1/)
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Replying to @MForstater @CarterPaddy and
Lets look at Oyu Tolgoi mine in Mongolia for example (Playing with
@Open_Oil ‘s model http://openoil.net/oyu-tolgoi-model-and-narrative-report/ … ) (2/)1 reply 0 retweets 1 like -
Replying to @MForstater @CarterPaddy and
The tax line in their base case model looks like this. There are 27 (out of 55) years with no pre-tax profit, and 43 years where no cash CIT is paid. (overall the government’s share is 57% of net cash flows including all revenues)pic.twitter.com/HTPy321PFk
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Replying to @MForstater @CarterPaddy and
So what you are asking is if we point at a single year when the mine has a loss ‘what is the chance that this is legitimate and what is the chance that it is based on profit shifting?’ (4/)
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Replying to @MForstater @CarterPaddy and
God (who sounds a bit like
@ali_readhead ) would tell us that all depends on commodity prices, costs etc… Lets assume there is profit shifting. Say the management fee should be cut in half and interest reduced by 3 percentage points. (Disclaimer: I just making these numbers up)1 reply 0 retweets 0 likes -
Replying to @MForstater @CarterPaddy and
If we make these adjustments it raises pre tax profit by 70% over the lifecycle of the mine (i.e. if OO base case represents what the company declared and the adjusted case represents the true ALP it means 60% of profits were being shifted) (6/)
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Replying to @MForstater @CarterPaddy and
BUT the pattern of years of loss and profit doesn’t look all that different. This time there are 26 loss years, and the project become profitable a year earlier. So the answer in this case is there is a 4% prevalence of loss years due to profit shifting.pic.twitter.com/s66Uv8vTpJ
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Replying to @MForstater @CarterPaddy and
Which is why I don’t think its all that useful a question – because it turns the answer that the Transfer Pricing Deity is 100% certain that the company is shifting 60% of its profits away into the statement that there is 4% chance that any given loss year is not a real loss year
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Replying to @MForstater @CarterPaddy and
(.... obviously these calculations will change if we change the commodity price for the OT model, or if we look at a different mine with different costs of production....) (/9)
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What I think it shows is that the intuition that loss years are a good indicator sign of profit shifting does not hold up (although as @hselftax says several years of losses demand explanation) (10/10)
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Replying to @MForstater @hselftax and
Great answer! So counting binaries misses ways of deflating profits whilst holding the pattern of 0 or 1s over the years fixed. I'm totally convinced counting false or true loss years is a poor measure and I hadn't thought of that, so thanks
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Replying to @CarterPaddy @MForstater and
However, the tweet I initially responded to said (something like) 'I agree that when a mine reports a loss it's not always fake' so the question how often fake remains, even if a poor way of assessing the overall extent of profit shifting, as you have explained.
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