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Dear Sir,
In the UK elections PM hopeful Ed Miliband has come under fire for having an interview with the foul mouthed comedian Russell Brand.
In it he was asked what he is going to do over the US companies like Amazon, Starbucks and Google who make millions in Britain but pay pennies in tax. The labour leader said they could & would crack down hard but had to start to tackle the problem at an international level at which point Russell rolled his eyes in disbelief.
If Labour party goes into coalition with the Lib-Dems they should call on the services of Vince Cable their Business Minister and one time chief economist for Shell Oil. He will be experienced in the transfer pricing scam to avoid taxes much used by our own Petroleum Giants.
It is one economic trick which is easy to explain.
My experience of it was with BP. BP Exploration Company (Libya) produced crude oil to the port of Tobruk where it sold it to another (separate) company BP Tankers (Cayman Islands) for $2/barrel. BP Exploration made a small profit and paid the corresponding small tax to the then impoverished Arab Government. The crude was transported to the UK and sold to another (separate) company BP Refining for $100/barrel.
BP Refining produced the petroleum products, made a small profit, and sold on to yet another separate company BP Marketing who retailed at petrol stations again making only a modest profit on a turnover of millions. Both UK companies paid the appropriate tax (small) to the Treasury.
BP Tankers probably spent no more than 50 cents on the transport so made 97.50$ on each barrel – a monstrous return but in the Cayman Islands next to nothing in tax. Amazon and the others use exactly the same transfer pricing rip-off.
One person who could teach Ed and Vince how to do it is no longer with us – the much maligned Colonel Gaddafi who on taking power in Libya in 1969 sussed the legal swindle immediately and in a new law imposed a much greater posted price on all crude oil exported.
Regardless of what the company claimed they were taxed on revenue calculated on the posted price not their transfer price with terrific benefit to his country’s finances.
Within one year all of the OPEC companies adopted the same fiscal system. Another year on Muammar nationalised BP and threw them out of his country. However much Russell Brand may approve I can’t see the UK and EU doing the same.