9.2.1

International Tax Policies

Test yourself

Transfer Pricing and Global Tax Competition

Illustrative background for Transfer pricingIllustrative background for Transfer pricing ?? "content

Transfer pricing

  • Transfer pricing describes businesses selling their products to entities in other countries.
  • For example, Starbucks UK could transfer products to their Starbucks Ireland entity.
  • Companies can choose the prices for transferring goods.
  • Making sure that prices are high in high tax regions can mean that a company makes no profits in the UK, but very high profits in lower tax jurisdictions like Ireland.
Illustrative background for Ireland and the EUIllustrative background for Ireland and the EU ?? "content

Ireland and the EU

  • In 2018, the EU investigated whether Ireland had made private agreements with companies.
  • Between 2010 and 2015, royalty payments to Irish shell companies were worth 23% of Ireland’s GDP.
  • Many Technology companies like Apple and Microsoft have large operations out of Ireland.
Illustrative background for FacebookIllustrative background for Facebook ?? "content

Facebook

  • In 2017, Facebook paid £5.1 million of tax in the UK.
  • It had revenues of £850 million and has a profit margin of 38% in many places.
  • This would imply they paid £5.1 million of tax. Assuming a profit margin of 38%, they paid a tax rate of 1.55% in the UK.
Illustrative background for Tax competitionIllustrative background for Tax competition ?? "content

Tax competition

  • Capital, companies and labour can relocate anywhere in the world because of globalisation.
  • This can lead to a ‘race to the bottom’ as countries cut taxes to attract MNCs and wealthy individuals to their nation.
  • Lewis Hamilton now lives in Monaco where there is a 0% tax rate on income.

Jump to other topics

1Introduction to Markets

2Market Failure

3The UK Macroeconomy

4The UK Economy - Policies

5Business Behaviour

6Market Structures

7A Global Perspective

8Finance & Inequality

9Examples of Global Policy

Go student ad image

Unlock your full potential with GoStudent tutoring

  • Affordable 1:1 tutoring from the comfort of your home

  • Tutors are matched to your specific learning needs

  • 30+ school subjects covered

Book a free trial lesson