Can we talk TRANSFER PRICING > Tariffs affect Companies that moved mfg to China to avoid taxes and to employ slave labor at low wages. They use "Transfer Pricing" to avoid all US taxes. They are paying for Tarriffs. Not consumers.

[Falcon + 222]

Transfer pricing has been used by US Oil companies for ages.  When US had to import majority oil from outside US they set up wholly owned  intermediary companies ex: Trading Company in low tax or no tax countries..  For example EXXON at one time had 28 companies whose World HQ was a P.O. Box in Bermuda.  So they sell their oil to the "trading oil" at cost so pay no taxes to company of origin. The trading company sells to their US refineries at inflated prices so the refinery or US operations technical makes no money that could be taxed in US.  The Trading company domiciled in a no tax/ low tax  country makes all the profit and has little or no tax liability.

So APPLE does the same thing.  It costs approx. $300 to mfg iPhone 8 in China.  Sells it to , Trading Company (100% owned subsidiary) , who sells it to APPLE U.S.A. at retail.  Apple pays no US Corp income tax. That's why APPLE and OTHERS lobbied to be able to bring oversea profits back to US.  They stiff the U.S. tax system then they payoff their congressional rep to get the cash back in U.S.

Some Apple products are currently Tariffed.   But not the phones.  If the new tariffs implemented  APPLE USA would be paying the Tariff not the consumer.  Poof . . . . all  APPLES Tax avoidance benefits is gone.   Apple could raise prices . . . . .  that would make Samsung very very happy , GREAT FOR GALAXY S10 sales.  

Apple is one example.  Much of US imported products take advantage of the Chinese currency Devaluation and Transfer Pricing.  Instead of criticizing Trump and blaming him for every thing these US companies should be writing letters to Chinese Communist Secretary General Xi Jingping telling him to cut a deal with Trump or we're moving out.  Instead they attack Trump and these companies along with congress give China hope to run out the clock. 

Trump will not cave.  If China thinks he will give in because of reelection I think they are mistaken. 

SO THOSE MFG IN CHINA THAT USE "YRANSFER PRICING SHELLS" ARE PAYING THE TARIFFS.  THEY COULD PASS COSTS ON TO US CONSUMER . . . . BUT HAVE NOT YET.  THE DEVALUED YUAN HAS HELPED THEM.  

INFLATION Q1. AT 1.8%.  NO PRICE INCREASES

 

Edited June 14, 2019 by Falcon

[John Foote + 1,135]

The size of imports from China has decreased, but the overall deficit has actually increased, more than offset by rising imports from Malaysia, Vietnam, etc.. And it's making the brokerage community recommend some emerging markets. I was on the phone with a broker two days ago and it sort of breaks my heart hearing the advice. These recent MAGA efforts are increasing overseas investments. We can't treat countries in isolation. Money seeks the easy path and returns. It cares not whether you are a democrat, republican, or whatever. It does factor risks for the stability of a country. 

The tech transfer issues with China must be addressed. But the blanket tariffs on typical things we import from China doesn't return the manufacturing to the USA. China is far enough advanced were they have to worry about Thailand and Vietnam taking some of their labor intensive manufacturing, but it's not coming back to the USA so easily. The material becomes imported from another country. The tech transfer issues mostly effect what we sell to China, because the next generation of product becomes an import and short sighted companies do sell themselves out there. 

[Falcon + 222]

1 hour ago, John Foote said:

The size of imports from China has decreased, but the overall deficit has actually increased, more than offset by rising imports from Malaysia, Vietnam, etc.. And it's making the brokerage community recommend some emerging markets. I was on the phone with a broker two days ago and it sort of breaks my heart hearing the advice. These recent MAGA efforts are increasing overseas investments. We can't treat countries in isolation. Money seeks the easy path and returns. It cares not whether you are a democrat, republican, or whatever. It does factor risks for the stability of a country. 

The tech transfer issues with China must be addressed. But the blanket tariffs on typical things we import from China doesn't return the manufacturing to the USA. China is far enough advanced were they have to worry about Thailand and Vietnam taking some of their labor intensive manufacturing, but it's not coming back to the USA so easily. The material becomes imported from another country. The tech transfer issues mostly effect what we sell to China, because the next generation of product becomes an import and short sighted companies do sell themselves out there. 

Some great points John.  

As far as imports from other Asian countries goes. . . .  Vietnam's exports to U.S. first quarter have gone up OVER 40% YEAR OVER YEAR.

One of the main reason is China is shipping out product thru Vietnam and stamping the box "MADE IN VIETNAM" .

I suspect same going on in other countries.  

Apple mfg Foxconn said today they could manufacture iPhones for the United States market in countries other than China. Bull___ !  They have no such capacity.

Trump is holding the better hand.  China knows that. I think even more important to China is Trump denying Huawei and other Chinese companies US technology . That could be devastating to their companies.  

Even if an agreement comes to be many firms will think twice about moving to China or expanding in China.

I didn't vote for Trump but he is on target with China.

Only problem with his trade negotiating (both China and Iran) he does give opponents an out, he doesn't give them an opportunity to "Save Face".

If US spoke with one voice in support of Trump both Iran and China deals would already be signed. Ex. John Kerry now with a Liberal Think Tank called, ASP , Advanced Security Project.  He and other Dems undermine the president and give hope to China and Iran to run out the clock.  

 

Edited June 14, 2019 by Falcon

[John Foote + 1,135]

On 6/14/2019 at 2:41 PM, Falcon said:

If US spoke with one voice in support of Trump both Iran and China deals would already be signed. Ex. John Kerry now with a Liberal Think Tank called, ASP , Advanced Security Project.  He and other Dems undermine the president and give hope to China and Iran to run out the clock.  

You give Kerry and Co. far too much credit. Trump does have China, indeed everybody, off balance, but China can wait out a president, or two, or three. And as Trump is boastfully willing to trash a deal, should we be trusted? Ask a Kurd, although those poor buggers were always going to be hung out in the end. 

I fear us signing deal and declaring victory much more than no deal yet. Then as they don't follow through on their end, what do we do?

Perhaps no deal is actually fine with us. Dealing with China will never stop. We have to be on alert every day.

[markslawson + 1,042]

The problem of transfer pricing has long been recognised by the tax authorities in the developed world. You will find that they have units that specifically police the multinationals on such matters and, in fact, the recent fuss over no tax apparently being paid by the likes of Apple and Google and such, despite all the business they were doing, wasn't about transfer pricing. It was about how you paid for the intellectual property associated with the devices/software etc. In Australia, at least, the local operations were basically just distributors adding very little value. In the case of software the digital goods came directly from overseas with no local involvement at all, so it became a question of whether the transaction was subject to local Goods and Services Tax (nope - or not until recently).

For the physical products, the individual companies already have private tax treaties with the tax office on just how profits should be taxed - a point which the Australian Senate discovered and had to back off, grumbling. The situation would  be different in American and, of course, Apple does not seem to pay much tax anywhere (declares profits in Ireland, I believe), but getting it to pay tax will require an international effort, with further agreement on just how the profits are to be divvied up.. Last I heard, a couple of years back, the EU had slapped an enormous back tax/fines bill on Apple.. not sure what's happened since. Dunno about transfer pricing on oil, but if the abuse is still allowed I'd be very surprised.. A large part of the at-pump price for oil is tax, incidentally, depending on where you are. 

[markslawson + 1,042]

On 6/15/2019 at 12:45 AM, Falcon said:

Transfer pricing has been used by US Oil companies for ages.

As per my earlier post on what I realise now is an old topic, the OECD has just announced a draft proposed international tax system to make the tech companies pay more tax.. you may care to look at it.. concerns about transfer pricing are now rather old..