Response to GE Hoax Reveals How Badly Press Understands Multinational Capitalism

The AP wrote a story on the hoax GE Press Release reprinted in its entirely below; after GE informed them it was a hoax, they withdrew the story.

But of the reports on the hoax, few seem to get it.

Business Insider notes it “OBVIOUSLY reads like a hoax” because of “comments in there about new policies about creating one American job for every one created abroad.” And the Chicago Tribune included this much of the explanation a self-described member of the Yes Men–which claimed credit–offered in an interview:

The “Yes Men” sent the release to draw attention to GE’s approach to taxes, Boyd said in a phone interview.

Yet aside from that, most of the coverage has focused on GE’s explanations for why they’ve paid so little in taxes, pointing to GE Capital’s big losses in recent years.

That is, no one really wants to report on what GE’s approach to taxes is. To the extent they do, they accept GE’s explanation unquestioningly. But if the AP had a sense of what GE’s real approach to taxes is, they would never have fallen for the hoax in the first place.

As such, the reporting on the hoax is revealing much about press ignorance.

Here is the explanation Jeff Immelt offered for GE’s tax scam a few weeks ago at DC’s economic club:

Now GE has taken criticism lately over our tax rate over the past two years. Like any American, we do like to keep our tax rate low. But we do it in a compliant way and there are no exceptions. The reason why our tax rate was so low in 2009 and 2008, or 2009 and ’10 is simple. We lost $32 billion in GE Capital as a result of the global financial crisis. Our tax rate will be much higher in 2011 as GE Capital recovers. But make no mistake, make no mistake. Business rarely speaks with one voice about anything. About anything. But we do on taxes. That’s because our system is old, complex, and uncompetitive. The purpose of the tax code should be that everyone pays their fair share, including GE. But it also should help to promote jobs and competitiveness and it does the opposite today. Like most of our business colleagues, GE favors closing loopholes, a lower corporate rate, and a territorial system. This would put us in line with every other developed country in the world — Germany, Japan, United Kingdom — all of them. Taxes are an important part of jobs and competitiveness and we think it deserves a healthy debate.

Now, this speech was reported credulously by the press, which in and of itself is a testament to the sorry state of our journalism. That coverage allowed Immelt to focus on loopholes in the corporate tax system and not the entire system of havens that multinational businesses like GE exploit. It accepted Immelt’s claim that all the losses GE Capital took took place in the US, but doesn’t ask why GE Capital’s profits of years past weren’t themselves registered in the US. And it accepted that Immelt’s claim that taxes are about the competitiveness of one country over another, rather than the optimization of taxes over many countries.

Compare what real Jeff Immelt had to say to his corporate buddies a few weeks ago with what this hoax release says. Hoax Immelt focuses on GE’s use of tax havens as a strategy to avoid taxes.

Immelt acknowledged no wrongdoing. “All seven of our foreign tax havens are entirely legal,” Immelt noted.

And the changes Hoax Immelt lays out to fix the problem also focus on multinationals’ ability to shift profits from jurisdiction to jurisdiction to avoid taxes.

Immelt outlined several concrete steps he would take to push for modernized tax policies that reflect the realities of the global economy. “I will personally ask President Obama to work with Congress to require country-by-country reporting by multi-national corporations of the sales made, profits earned and taxes paid in every jurisdiction where an entity operates. Instead of moving money via “transfer pricing,” corporations ought to pay taxes in the jurisdictions where profits are actually made. If Congress is able to establish standard industry-wide solutions, GE will close our tax haven operations abroad, including our subsidiaries in Bermuda, Singapore and Luxembourg.”

In other words, Hoax Immelt gets right to the core of the tax cheat strategies of all multinationals, not just those that have become finance companies while they gut their manufacturing operations in this country.

Sure. As Business Insider noted, Hoax Immelt’s claim that GE would create one job here for every job it created overseas should have been a tip-off that this Press Release couldn’t possibly come from the company that has been shipping jobs overseas. But the larger point of the hoax–the improbability that GE would stop its shell games to avoid taxes–seems to have entirely skipped the notice of most coverage of this so far.


———- Forwarded message ———-

From: GE Communications

Date: Wed, Apr 13, 2011 at 5:43 AM

Subject: FOR IMMEDIATE RELEASE: GE Responds to Public Outcry – Will Donate Entire $3.2 Billion Tax Refund to Help Offset Cuts and Save American Jobs

To: [email protected]

GE Responds to Public Outcry – Will Donate Entire $3.2 Billion Tax Refund to Help Offset Cuts and Save American Jobs

Fairfield, CT, 13th April, 2011– GE CEO Jeffrey Immelt has informed the Obama administration that the company will be gifting its entire 2010 tax refund, worth $3.2 Billion, to the US Treasury on April 18, Tax Day, and will furthermore adopt a host of new policies that secure its position as a leader in corporate social responsibility.

“We want the public to know that we’ve heard them, and that we know many Americans are going through tough times,” said GE CEO Jeffrey Immelt. “GE will therefore give our 2010 tax refund back to the public and allow the public to decide how to spend it.”

Immelt acknowledged no wrongdoing. “All seven of our foreign tax havens are entirely legal,” Immelt noted. “But Americans have made it clear that they deplore laws that enable tax avoidance. While we owe it to our shareholders to use every legal loophole to maximize returns – we also owe something to the American people. We didn’t write the laws that let us legally avoid paying taxes. Congress did. But we benefit from those laws, and now we’d like to share those benefits. We are proud to be giving something back to America, and we are proud to set an example for all industry to follow.”

Over the coming weeks, GE will conduct a nationwide survey to determine how the company’s $3.2 billion returned refund is to be allocated. The survey will be conducted both online and offline, and will permit the public to weigh in on which of the recently-enacted budget cuts they would like to see reversed.

In tandem with the gift, the company is also announcing a host of new policies to restore public faith in the GE brand, including a commitment to keep American jobs in America, and to create one U.S. job for each new job created abroad. The ambitious plan will overhaul accounting systems to allow public transparency and phase out the use of tax havens in five years. “Given my recent appointment as President Obama’s Chairman of the Council on Jobs and Competitiveness, it is no longer appropriate for GE to engage in practices that, whether by fact or perception, are at odds with the greater good of the nation,” Immelt said.

Immelt outlined several concrete steps he would take to push for modernized tax policies that reflect the realities of the global economy. “I will personally ask President Obama to work with Congress to require country-by-country reporting by multi-national corporations of the sales made, profits earned and taxes paid in every jurisdiction where an entity operates. Instead of moving money via “transfer pricing,” corporations ought to pay taxes in the jurisdictions where profits are actually made. If Congress is able to establish standard industry-wide solutions, GE will close our tax haven operations abroad, including our subsidiaries in Bermuda, Singapore and Luxembourg.”

Further details on GE’s new policy will be released in the coming weeks.

About GE

GE (NYSE: GE) is an advanced technology, services and finance company taking on the world’s toughest challenges. Dedicated to innovation in energy, health, transportation and infrastructure, GE operates in more than 100 countries and employs about 300,000 people worldwide. For more information, visit the company’s Web site at www.ge.com.

PRESS CONTACT

Samuel Winnacker

GE Corporate, Assistant Director

Communications & Public Affairs

+1 615 375 6658

[email protected]

Marcy has been blogging full time since 2007. She’s known for her live-blogging of the Scooter Libby trial, her discovery of the number of times Khalid Sheikh Mohammed was waterboarded, and generally for her weedy analysis of document dumps.

Marcy Wheeler is an independent journalist writing about national security and civil liberties. She writes as emptywheel at her eponymous blog, publishes at outlets including the Guardian, Salon, and the Progressive, and appears frequently on television and radio. She is the author of Anatomy of Deceit, a primer on the CIA leak investigation, and liveblogged the Scooter Libby trial.

Marcy has a PhD from the University of Michigan, where she researched the “feuilleton,” a short conversational newspaper form that has proven important in times of heightened censorship. Before and after her time in academics, Marcy provided documentation consulting for corporations in the auto, tech, and energy industries. She lives with her spouse and dog in Grand Rapids, MI.

  1. PeasantParty says:

    About time they got caught. They do nothing but reprint talking points anyway.

    Immelt acknowledged no wrongdoing. “All seven of our foreign tax havens are entirely legal,” Immelt noted

    Looks like all of us are going to have to create an offshore bank and retirement vehicle to switch our 401K’s to.

  2. PeasantParty says:

    GE gets so much of our tax dollars in subsidies for every branch of their business they would never give a cent back. Our tax dollars also pay for them to do electric, nuclear, and other business in foreign countries!

  3. Scarecrow says:

    We wanna contest or survey on what hoax Immelt should recommend the US do with the $3 billion he’s going to give back.

    1. Fund a special IRS investigations and prosecution section to go after corporate tax evastion scams.

    2. Fund the EPA to go after corporate polluters

    3. Replenish the unemployment compensation fund in states where GE operations have shifted jobs oversees.

    etc.

  4. PhilPerspective says:

    EW:
    As such, the reporting on the hoax is revealing much about press ignorance.

    Need I remind you what Upton Sinclair said? I know you know it. It really explains everything with our “press.”

  5. masaccio says:

    One of the ways GE cheats us on taxes is called transfer pricing. The IRS set up a division to deal with it. Here is a brief description from the tax “professionals” at Ernst and Young. GE hired the former head of that section into its tax section according to this.

    GE hired the senior IRS official who was overseeing the service’s transfer pricing program, under which large multinational companies like GE negotiate with the IRS about how to price products and services among subsidiaries. The subject is controversial because it can allow companies to shift profits to lower-tax countries.

    Can you say thuggery?

    • earlofhuntingdon says:

      Yea, baby. Groovy. Mastering the arcane rules of transfer pricing has made a lot of juniors into partners, and lost countries untold tax revenues.

      They are sometimes irrational; that they are intended to impose tax and minimize the size of loopholes and tax dodging makes them the bete noir of tax professionals and the CFO’s who employ them. Imagine, a country aggressively trying to collect taxes on the company activities it hosts and supports. The nerve.

      The subject is controversial because it can allow companies to shift profits to lower-tax countries.

      That’s an understatement of English proportions.

  6. qweryous says:

    The level of stenography and lack of understanding by the press is revealed has been obvious for a long time.

    Fairfield, CT, 13th April, 2011– GE CEO Jeffrey Immelt has informed the Obama administration that the company will be gifting its entire 2010 tax refund, worth $3.2 Billion, to the US Treasury on April 18, Tax Day,

    That does it right there if you have a clue about shareholders and boards of directors. Fiduciary responsibility would dictate that Never mind.

  7. earlofhuntingdon says:

    The purpose of the tax code should be that everyone pays their fair share, including GE.

    I’ve met a lot of officers, directors and corporate staffers of Fortune 500 companies. I’ve never heard one say that and actually mean it, not in the sense of “fair share” that anyone on Main Street would understand.

    I have seen CFO’s spend hundreds of thousands of dollars – sometimes spent blindly on an undisclosed -before-payment basis – for “ideas” from big accounting firms about how to lower taxes. I have seen tax, international and corporate lawyers and accountants, and foreign lawyers and accountants, spend years and millions of dollars to devise the most arcane systems, with the wildest fictional assumptions, in order to avoid taxes.

    I have seen the tax accounting industry change from being compliance driven to profit driven. The change in tone I can only summarize in a joke I’ve used before: The difference between tax planning and tax avoidance used to be five to ten in a federal pen. Now it’s whether a tax professional makes partner.

  8. earlofhuntingdon says:


    Like most of our business colleagues, GE favors closing loopholes, a lower corporate rate, and a territorial system.

    No CEO, CFO or tax director wants “loopholes” they use closed. They spend millions on lobbying to break them wide open. They do want loopholes their competitors use closed, so long as theirs stay open.

    If the shape of any loopholes changes, they want an entire industry or every issuer on the NYSE to receive the same treatment so that their financial statements and rates of return – and hence, corporate bonuses – are similarly affected.

    A “territorial” system is one that taxes only those “profits” made within the territory or jurisdiction of a given taxing authority, and which ignores profits made elsewhere, as defined by sometimes arcane and irrational accounting and doing business rules.

    It’s an essential feature in gaming the system. That involves, in part, fictionally and occasionally for real parking profits in low tax rate jurisdictions. That location is often not the same as the place where resources and activity that generated them are located.

    GE is being honest when it says it wants corporate tax rates lowered. It doesn’t connect that driving goal with the sentiment that as a “responsible corporate citizen”, it should pay its “fair share” of taxes. It doesn’t connect it with tying those taxes to the jurisdiction where it locates its principal productive assets. The country that hosts those helps make those profits by providing infrastructure; secure and stable governments; an open, fair and predictable legal system; an open market; and talented pool of labor, materials, customers and suppliers.

    GE and its peers tie them instead to whatever criteria will support an argument that puts its taxable profits in low cost jurisdictions. That’s true regardless of what resources that country provides to help a business make those profits (other than the “resource” of legislating a low tax rate, which resource poor Caribbean and Channel islands can do at a whim).

  9. earlofhuntingdon says:

    Hoax Immelt says this:

    “If Congress is able to establish standard industry-wide solutions, GE will close our tax haven operations abroad, including our subsidiaries in Bermuda, Singapore and Luxembourg.”

    That list leaves out several dozen famous names, including the elegant choice of Dutch, English or Hong Kong holding companies. It leaves out the Caribbean, the Channel Islands, the Isle of Man, Eastern Europe and the Gulf States (whose relative utility depends on where you really make money and employ people to do it, and where you plan to park it and spend it).

    For those who already have it and just want to hide it, there are additional countries, such as Switzerland, and more adventurous places like states along the Adriatic.

  10. earlofhuntingdon says:

    Hoax Immelt lays bare much of what GE fails to do and would now no longer even consider doing, unless it were forced to along with every other corporate tax payer in America. Applying uniform rules to corporate taxpayers, oddly enough, is a principal purpose of a sane governmental tax policies. No company pays profits to a government without the coercion of the law, and they won’t give it up even under duress unless peers are forced to do the same. That uniformity is the equal treatment that makes the coercion legal.

    Not only has the US government not tried hard to collect corporate taxes due it, it is ignoring open and notorious gaming of the system that hides what that amount is. That’s the same as aiding and abetting fraud on yourself.

    Except that “yourself” doesn’t mean the American government; it means the American public. Yet, the public officials championing that lax policy are now screaming “deficit” in unison and telling their public to pay more and accept fewer government services. Meanwhile, those officials are blithely walking through the revolving door or collecting from corporations thousands and more in contributions that they use to stay in office.

    That would make a good journalistic lede, wouldn’t it?

  11. earlofhuntingdon says:

    Economically challenged islands, mountaintops and ports of call, with few resources beyond the view, the weather or the malleability of their legislatures, attract revenue by providing something others can’t or won’t.

    If it’s not a sandy beach or ski lodge, unusual drinks, or the aura of getting laid by your heart’s desire, it’s the ability to avoid tax. Or it’s the availability of discreet banking, or the ability to nominally locate a company there without actually visiting or employing anyone there (except a few hours a year of a lawyer or accountant’s time).

    What every other country does, though, in exchange for similar corporate conveniences, is demand that you bring your money and employ their citizens. They keep track of whether you do both. They take back their subsidies in cash, or impose less formal, but equally inconvenient and real consequences, if you renege. And they remember. If you walked out without keeping your promises, but your management successor changes tack and wants to enjoy those benefits again, the price in money and local employment or whatnot goes up, as does the monitoring.

    It’s all part of an efficient economic or industrial policy. That’s the sort of thing America claims it doesn’t have and doesn’t want. As EW has written about before, that’s as bogus as a promise of transparency from Dick Cheney or Barack Obama.

    What America does have is an industrial policy that subsidizes US companies on a no questions asked or demands made basis, because corporations are our most important asset (to paraphrase a once common but vacuous corporate slogan).

    That means, as it did with the bank bail-out, that the US government spends taxpayer funds without asking for commitments about economic investment and domestic employment. It means that it subsidizes the outsourcing and offshoring of jobs, paid for by the tax dollars of people who lose their jobs and who, if lucky, get another one that pays less and demands more.

    As an economic model, that’s destructive. As a way to subsidize virtually stateless but American companies, as a way to privatize wealth and socialize losses, it’s simply mahrvelous. That’s America’s economic policy. It’s what Jeffrey Immelt means when he says he wants GE to pay its “fair share” of the cost of running America and keeping it great.

    • eCAHNomics says:

      Plz distinguish betw a govt industrial policy that is progrowth vs the one that the USG has, which is to subsidize all the malfunctional U.S. inds that own the USG.

      • earlofhuntingdon says:

        As a former denizen of Wall Street, you could do that better than anyone.

        My guess would be that the operative question is whose growth and whether the effects of that growth are confined to senior executives and Wall Street investors, or whether they also result in more, better jobs and investment in facilities and infrastructure here.

        If you set up an electronics factory with government tax or other subsidies in Toulouse or Munich, for example, but spend money, do research and employ all but a handful of people only in Shanghai, the French and German governments would consider that reneging on a deal and claw back the subsidies. The English would call that blotting one’s copybook.

  12. allan says:

    How about this for a hoax:

    President Obama Announces Members of the President’s Council on Jobs and Competiveness

    WASHINGTON – Today, President Barack Obama announced his intent to appoint several members of the President’s Council on Jobs and Competitiveness.

    · Steve Case, Member, President’s Council on Jobs and Competitiveness

    · Kenneth I. Chenault, Member, President’s Council on Jobs and Competitiveness

    · John Doerr, Member, President’s Council on Jobs and Competitiveness

    · Roger W. Ferguson, Jr., Member, President’s Council on Jobs and Competitiveness

    · Mark Gallogly, Member, President’s Council on Jobs and Competitiveness

    · Joseph T. Hansen, Member, President’s Council on Jobs and Competitiveness

    · Lewis “Lew” Hay, III, Member, President’s Council on Jobs and Competitiveness

    · Gary Kelly, Member, President’s Council on Jobs and Competitiveness

    · Ellen Kullman, Member, President’s Council on Jobs and Competitiveness

    · A.G. Lafley, Member, President’s Council on Jobs and Competitiveness

    · Monica C. Lozano, Member, President’s Council on Jobs and Competitiveness

    · Darlene Miller, Member, President’s Council on Jobs and Competitiveness

    · Paul S. Otellini, Member, President’s Council on Jobs and Competitiveness

    · Richard D. Parsons, Member, President’s Council on Jobs and Competitiveness

    · Antonio Perez, Member, President’s Council on Jobs and Competitiveness

    · Penny Pritzker, Member, President’s Council on Jobs and Competitiveness

    · Brian L. Roberts, Member, President’s Council on Jobs and Competitiveness

    · Matt Rose, Member, President’s Council on Jobs and Competitiveness

    Oh, wait …

      • earlofhuntingdon says:

        Yea, billionaires and millionaires whose idea of job hunting is what cafe to have lunch in, what business to close down, and where to outsource their jobs.

        Mr. Obama understands that there are employers and employees. It’s just that employee concerns about what constitutes a living wage or career job aren’t relevant. He’s only concerned with the views of those who pay wages, not those who earn them.

  13. mzchief says:

    OT– Interesting discussion now on TV3 regarding the ECB (and that would include the US Federal Reserve) backstopping German bond holders. Compelling comments by Constantin Gurdgiev, Adjunct Lecturer in Finance with Trinity College Dublin.

  14. onitgoes says:

    And yet we have those who blog here tsk-tsking that IF ONLY Team USA stopped it’s horrid taxation on corporations, why, then there’d be loads of jobs ‘n stuff for the common proles.

    How people over a certain age can continue to believe in fairy tales is beyond me.

    Thanks for the info. OTOH: very interesting. OTOH: same old, different day. Theives, brigands, crooks ‘n liars – all of ’em.

  15. readerOfTeaLeaves says:

    For anyone who’s interested in this general topic, a recent post at Col Pat Lang’s Sic Semper Tyrannis, written by a US War College prof, about the conversation we (Americans) should be having, might be of interest.

    The title is: “Public Goods, the Social Contract, and the Discussion that Americans Should be Having”, and I found it kind of a breath of fresh air to see the conversation burble.

    I honestly don’t see much evidence that many US journalists and writers really understand the whole tax haven issues (heck, a lot of us are on the learning curve…). So it’s not surprising the hoax was so easily perpetrated.

    Immelt might give a moment’s pause to consider how appalling it is that his views are so easily mimicked. Good over the short term; probably not a very prudent long term proposition.

    • mzchief says:

      I honestly don’t see much evidence that many US journalists and writers really understand the whole tax haven issues (heck, a lot of us are on the learning curve…). So it’s not surprising the hoax was so easily perpetrated.

      Somebody did once upon a time to help bust MCIWorldCom although the offshore shell game was not touched.

  16. readerOfTeaLeaves says:

    Looks like Ratigan also covered this topic today, interviewing Wm Cohen (“House of Cards”). I figure the more clicks these segments get, the more coverage these topics will receive.

    After all, GE may own MSNBC, but if they get enough clicks on segments covering the corruption of politics by corporate interests, then the ad money starts to make noise. I’m all about more noise for the ads on these segments about corporate control of government.

  17. earlofhuntingdon says:

    My nom de guerre notwithstanding, I’m fundamentally for the average citizen, the Saxon, not the Norman elite. Their wealth is often derived through the accident of birth or the deliberate policy of governments, and only sometimes due to their superior skills and performance. John Mack and Bill Gates would not be my candidates to receive free legal aid when their civil rights are in jeopardy.

    Companies and wealthy investors have access to cash and professional services most citizens could only dream about. As professional investors in company stocks and bonds, they assume the business risk that the company’s cash or capital can be exhausted through bad luck or bad management, compromising the payment streams they expect. The same is true of investing in government bonds. Their rate of return is lower, in part, because the risk of default is ordinarily lower; it’s not nonexistent.

    The idea of subsidizing them from that risk, of immunizing them from the harm of failing adequately to assess the risks of investing with company A or management team B, is flawed. It turns on its head the capitalist’s normal expectations. It casts aside the basic doctrine of allocating risk of loss to those persons most able to manage that risk. That said, a requirement for that to work is reasonable regulation, including mandating adequate and full disclosure of who’s operating a company, what the company is doing, and how well they’ve done it.

    Governments are most effective when subsidizing transitional costs for risks beyond the control of the average citizen. They fund unemployment schemes to speed job transitions, for example, where the job loss is due to the employer’s decisions, not owing to the fault or incompetence of an employee. They underwrite bank deposits in amounts that middle and modestly well-to-do citizens might make because citizens need banks to manage their daily lives, and because that covers the risks most likely to be encountered, making the banking system predictable and stable. The known unknowns crop up like wars when you mix consumer banking and the issuance and trading of securities.

    Governments don’t ordinarily expect to or underwrite an entire banking system, except when it threatens to fail for causes beyond its control. When they underwrite the failure of a specific bank, like Northern Rock in the UK, responsible governments demand thorough investigations about why an emergency call on public funds was necessary. They demand and make management changes; they structure interventions to assure insofar as possible that the public will get its money back.

    They don’t leave in place and hand out bonuses to managers whose greed and explicit business models led to their bank’s failure. Stock and bond holders lose out, fully or partially, because that’s the risk they assumed in exchange for not being liable for company operations beyond the value of their investment.

    When responsible governments intervene to “save” an entire banking system, they demand and make staffing and operating changes, after thoroughly investigating why they are needed, and structure support in ways that protect the public’s investment. They monitor how well that works and adjust as they go along. That worked well in the aftermath of the savings and loan crisis.

    The pros who have most to gain and who established the level of risk in the game are meant to lose when that risk comes to pass. Better to pay to recapitalize a bank or banks than to reward high risk taking by removing its consequences. A lot of governments work that way, but not, apparently, the US.

    I would hope the Irish follow the Icelanders’ choice. Privatizing profits and socializing losses is fine for corporations and their investors, for John Mack and his wife. It’s deadly and corrupting for government and society at large.

  18. earlofhuntingdon says:

    It used to be J.D. Salinger’s Catcher in the Rye and the “N” word in Mark Twain’s Huckleberry Finn, which Twain used in a way that decried racism, not support it. Now the Right wants banned how hard it is in America to get a job that pays a living wage. (h/t the Guardian)

    It should come as no surprise in Jeffrey Immelt’s America that Barbara Ehrenreich’s book, Nickel and Dimed, should be listed as one of the top 10 books that Americans most want banned.

    Also included is a traditional favorite, Aldus Huxley’s dystopian novel, Brave New World, and books that deal frankly with homosexuality, drugs and age-appropriate descriptions of sex. I guess conservatives and fundamentalists would rather live in dystopian present than read someone else’s vision about why we might not want to live in a dystopian future.

    From the ALA’s announcement about books on and off the list:

    “And Tango Makes Three” is an award-winning children’s book about the true story of two male Emperor Penguins hatching and parenting a baby chick at New York’s Central Park Zoo. The book has appeared on the ALA’s Top Ten List of Frequently Challenged Books for the past five years and returns to the number one slot after a brief stay at the number two position in 2009. There have been dozens of attempts to remove And Tango Makes Three from school and public library shelves. Those seeking to remove the book have described it as “unsuited for age group,” and cited “religious viewpoint” and “homosexuality” as reasons for challenging the book.

    Off the list this year are such classics as Alice Walker’s “Color Purple”; “To Kill A Mockingbird” by Harper Lee; “Catcher in the Rye” by J.D. Salinger; and Robert Cormier’s “The Chocolate War.” Replacing them are books reflecting a range of themes and ideas that include “Brave New World” by Aldous Huxley; “The Absolutely True Diary of a Part-Time Indian” by Sherman Alexie; “The Hunger Games” by Suzanne Collins; and Stephenie Meyer’s “Twilight.”

    How anyone not a racist could object to Harper Lee’s masterpiece is beyond my ken.

  19. stratocruiser says:

    I know that everyone has already passed by this post, but just in case it’s needed, here is an explanation of transfer pricing.
    Suppose you have 500 or so mens clothing stores in America. You then buy a factory in Italy that makes one of your labels. You sell the suits for 600 bucks in the States and they cost 200 dollars to make in Italy. The question is, at what price do you import them and what price does the factory charge to the retail division.

    If the factory charges $200 to the retail section, then the four hundred gross profit belongs to the (American) retail side. If they charge the suits at, say $550, the American division will make just enough profit to pay overhead and commissions. The profit on the suits will stay in Italy, subject to their tax laws.

    You don’t even need a factory in Italy. You could do the same thing by buying from a cheap manufacturer anywhere and shipping the goods through your selected low tax haven and having a division there to mark it up to retail. In fact, you may not even need to actually move the goods there, as long as title and invoice goes through there.

    As a side note, I heard a few weeks ago about American companies moaning about all the profits they have stranded overseas that they could use to employ more Americans if only they could repatriate the money at a reasonable tax rate. Apparently, we offered a very low rate on repatriations a few years ago as a special deal and the multinationals want the deal again. Transfer pricing is the reason the money is stranded.

    • earlofhuntingdon says:

      You are absolutely right. The claims by CFO’s and CEO’s that their corporate profits are “imprisoned” offshore because CFO’s and CEO’s “can’t afford” to pay tax at the rates charged in “socialist” America is a high-pitched whine. And a false one.

      The keys to the prison are in the pockets of those same CFO’s and CEO’s. So, too, is the choice to employ workers here or abroad. Eliminating domestic employment is as universal a mantra in corporate America as outsourcing. It would be considered unSerious to increase employment here by any meaningful amount. Corporate CEO’s and CFO’s pride little else more than being taken seriously by each other, their peers and the Harvard Business School.

    • earlofhuntingdon says:

      I would expand your discussion of transfer pricing. The main problem is what rules govern the allocation of profit to each step in the supply and distribution chains.

      Theoretically, the answer is akin to how Europeans allocate their VAT taxes. The value added at each step in the supply chain, from cloth and leather bits at a nickel a piece, to completed athletic shoe at $100 a pair, attracts VAT. (Hence, the name Value Added Tax.) But each step is taxes as if it were a separate transaction.

      For example, VAT at 17.5% is paid on the nickel cost for a piece of leather. When it’s sewn into a pattern and sold to a manufacturer for $1, VAT is paid only on 95 cents, the value added at that step. That includes processing costs plus profit. The VAT on the original nickel was already paid. And so on at each step until the assembled shoe is sold at retail for $100.

      It sounds complicated, but the accounting processes are well-known, the s/w is tried and true, and it works readily. If each step involves a separate vendor, each vendor records, collects and pays VAT to the government only on the steps in the chain its responsible for.

      • earlofhuntingdon says:

        The opaqueness and, hence, the complexity in transfer pricing derives from the fact that a single enterprise can and often does control multiple steps in the chain, across more than one country. Virtually every product today, and many services, involve value added in more than one country.

        If each step in the chain were done by independent companies, with equivalent power, competing with each other for every dollar in the chain, transfer pricing would be easy. Use invoice pricing and be done with it.

        That’s not very common. Typically, one player in the chain has more power than the others and can dictate terms in excruciating detail. Extreme examples would be Wal-Mart and General Motors, behemoths in the sourcing world, which dictate quantity, price and service terms, including what countries those are performed in.

        In addition, the same enterprise often controls multiple steps in the chain through various owned or controlled (legally or in fact) subsidiary operations in multiple countries. That makes gaming the system possible, indeed probable.

        Transfer pricing rules attempt to correct for that by requiring the use of “arms length” pricing. That is, through the construction of a theoretical price for a part, a product or a service equivalent to the price unrelated buyers and sellers, with competing interests, would agree on.

        Calculating and defending those prices are what consume most audits and litigation. Those can take years to resolve and can involve competing claims by two or more countries seeking the same tax dollar, each of whom also has conflicting interests in wanting to attract to their shores as many steps in the chain as possible.

        • earlofhuntingdon says:

          This is too long already, but here’s a quick example involving a common model for a global supply chain for a popular product. American multinational, Damson Plum, sells an electronic game call a Z-Box. Here’s how it gets to teenage bedrooms:

          Damson, headquartered in San Jose, developed the patents and other intellectual property used in the Z-Box. It owns them through a research & design subsidiary in Bangalore, India. Electronic circuit boards, wiring, printed packaging and instruction materials are made in China. Novel touch screens are made in Japan. Plastic and metal boxes and fasteners are made in Malaysia. Final assembly is performed in Mexico, a party to the North American Free Trade Agreement, giving its “manufactured products” preferred access to the US market.

          Importation from Mexico, warehousing in a Free Trade Zone in Texas, and domestic shipping and delivery to retail outlets and e-business direct sales centers are managed by Damson’s principal US distributor. The distributor is not owned by Damson, but Damson makes up 70% of its business.

          European sales are booked through Damson’s Dutch holding company, owned by Damson International (“DI”), in Zurich. Products are direct shipped from Mexico through a first EU port of entry in Rotterdam or at Amsterdam’s Schiphol Airport to national retail outlets across the EU. Warranty support is provided by a technical service and free trade zone warehousing subsidiary also based at Schiphol.

          As a final complication, DI in Zurich is staffed by executives who spend 45% of their time traveling across the EU, 35% in Zurich and 20% in the California. All important decisions are made in San Jose.

          The Z-Box sells for $200 retail, with national discounts from zero to 20%. How do you transfer price each step in the chain? Where do you pay tax and park profits? For extra credit, what’s the Z-Box’s “country of origin” for customs and product labeling purposes? For extra-extra-credit, whose responsible for its environmentally responsible recycling in compliance with EU rules?

          The tax and doing business issues in that real life scenario will have been mapped before the first Z-Box was made or shipped. It will have been vetted by corporate staffs in San Jose, by consultants in each country, by regional consultants and internal auditors, and signed off on by Damson’s CFO, director of taxes and international counsel in San Jose. Often, foreign consultants will know only their piece of the overall pie, not how each piece fits with the others.

          When transfer pricing decisions inside that supply chain are challenged by any jurisdiction, Z-Box can call on top consultants to defend its choices. Challenges typically arise during audits by outside accountants or the IRS, typically staffed by junior professionals with too many projects on their to do list and not enough time or resources to get to them. Guess who wins most challenges?

          [I hadn’t intended to end on a flippant note, but it’s late.]

          • earlofhuntingdon says:

            One of the red flags in that scenario is the real life problem that multinational executives sometimes jet set, spending less time where they nominally live and work than they do in the field or at the parent company.

            Parent companies vary considerably in how tightly they control decisions. They vary by the kind of decision they delegate. Some decisions are freely delegated to where you might think they belong by looking at an organizational chart. Sometimes those charts are fiction. Engineering decisions, for example, might always be made in Stuttgart; product formulations or marketing strategies might always be made in Dallas or Paris.

            A legal and taxing headache, and a taxing authority’s wet dream, comes from the fact that countries sometimes claim jurisdiction over executives, companies, sales and profits based on where important decisions are made, not where they are formally placed in a chart of global operations.

            If Damson International’s executives make all their important decisions – or have them made for them – in San Jose, it can have multiple unintended consequences. Damson itself could be deemed to be doing business in Switzerland or the EU, subjecting the parent company to European tax and registration requirements, and making an elaborate tax and organizational house of cards come tumbling down. Substitute Apple or HP, GE or GM in that scenario and the impact becomes clearer.

            Those kinds of tax claims are made necessary by the elaborate games companies often play to avoid taxes in the countries where they in fact keep their executives, where they employ the most people and resources, and where they find the stoutest political defenders of their corporate prerogatives. It’s a cat and mouse game where the taxing jurisdiction is often the mouse.

            • earlofhuntingdon says:

              Last item, but it relates to several earlier discussions we’ve had about data privacy.

              Damson in San Jose maintains a database that includes personally identifiable information on each customer worldwide. It solicits that information at the point of sale and solicits it through on-line product registration, sometimes with offers of discounts for games and s/w upgrades.

              Damson contracts with external data aggregators who scan publicly available databases for information on its customers. Many US states, for example, routinely sell data on drivers licensed in their state. Damson sometimes exchanges information with other companies outside its industry. An example would be where there’s an existing or possible new crossover application, such as making Z-Box interfaces for use by passengers in cars or on airlines.

              Consequently, Damson has acquired information on global customers from the EU and non-EU European countries, from public and private sources in Canada, Japan, China, the US and so on.

              Damson’s chief information officer is based in San Jose. She oversees staff in Europe, Asia, etc., who also have dotted-line reporting to their local managers. Her main server farm is in the Bay Area. Back-up and other services are performed in Bangalore and Shanghai. Sales, warranty and customer information is available to various disciplines within the company and throughout the world, sometimes anonymized, sometimes in original detail.

              Whose data protection rules, if any, apply to the collection, transmission, processing, storage and use of personally identifiable information?