If those commenting on this blog were to be believed (and they should not be) the OECD's preferred method of allocating profits between states allocates 100% of group profits to\u00a0jurisdictions and no more or less, and does so in an environment of mutual cooperation where outcomes are assured and fair tax is paid.<\/p>\n
That's not true. As Patrick Love has written on the OECD's own blog<\/a>:<\/p>\n There is no simple method for calculating a transfer price, so the final value is the result of a negotiation between the company and the tax authority. Ideally, this would be based on equal access to information, a shared objective and a \u201czero sum game\u201d where an exemption in one jurisdiction is offset by tax in another. It\u2019s not. International business consultancies have more people working on transfer pricing than any national tax authority. Prem Sikka of Essex Business School, co-author of a paper on\u00a0The Dark Side of Transfer Pricing<\/a>, claims that \u201cErnst & Young alone employs over 900 professionals to sell transfer pricing schemes. The US tax authorities employ about 500 full-time inspectors to pursue transfer pricing issues and Kenya can only afford between three and five tax investigators for the whole country.<\/p><\/blockquote>\n So let's be clear about why transfer pricing is not the neat zero-sum game its apologists would like to suggest it is.<\/p>\n First, there is no guarantee a company will send matching information to each tax\u00a0authority.<\/p>\n Second, there is no reason why the tax authorities need agree.<\/p>\n Third, the tax\u00a0authorities\u00a0may not\u00a0know\u00a0they disagree and there is no obligation on a taxpayer to tell them if that outcome is in their favour, as it can be.<\/p>\n Fourth, there are insufficient resources, as noted above giving\u00a0asymmetric\u00a0power to companies.<\/p>\n Fifth, there are insufficient double tax agreements.\u00a0Developing\u00a0countries have few and there are almost none with tax havens. by\u00a0definition then there is no reciprocity in much of the system.<\/p>\n