Support you Deserve

We are a leading independent tax and business advisory services firm specializing in international tax consulting, transfer pricing, valuation and tax process innovation.

We operate throughout North America and the United Kingdom and cover over forty countries through strategic alliances with firms across the globe.

Accomplished Professionals

Our team of highly-experienced professionals consists of former Big 4 tax specialists, economists, attorneys, CPAs and MBAs, each with decades of experience delivering tax, transfer pricing, valuation and tax innovation services.

Our senior professionals are directly engaged in the work we deliver to our clients - unlike many large firms that employ a “leverage model” relying on less experienced personnel to do most of the work.

Delivering Value to Our Clients

Our clients include private and public companies ranging from emerging businesses to Fortune 50 companies. They include U.S. and non-U.S. based multinationals operating in a wide array of industries, including industrial manufacturing and distribution, aerospace, food processing and distribution, agriculture, medical products manufacturing and distribution and financial services.

Our clients seek responsive, collaborative professionals who deliver services efficiently and cost effectively. We willingly share our knowledge and insights to help our clients understand the technical issues and enhance their ability to make informed, strategic decisions with confidence.

The Economist Falls for Formulary Apportionment

By Kash Mansori
Posted: February 04, 2016

Last week The Economist devoted one of its leaders to the topic of transfer pricing. From the January 30th issue:

Going after Google

Britain’s tax men struck a poor deal. But the real problem lies with flawed 
corporate-tax rules.

It was meant to win plaudits for clawing more money out of cunning, tax-shy 
multinationals. Instead, a deal between Google and the Britsh government, in which 
the tech giant will pay £130m ($185m) in back taxes covering a ten-year period, has 
attracted only opprobrium.

…Britain may well have been too generous to Google. But the bigger problem with the 
deal is what it says about international efforts to crack down on corporate-tax 
avoidance.

The Economist’s leaders typically highlight major economic and political issues of the day, and transfer pricing and corporate taxation is certainly one of them right now; that’s exactly what BEPS was all about, after all. Unfortunately, in this case the conclusion reached by The Economist is not helpful:

The problem is…  a damaging fiction which is ingrained in the current system [of 
corporate taxation]: that a multinational can be seen as a cluster of separate companies 
to be treated as if they are trading with each other at arm’s length. The “transfer 
pricing” rules that police this system are complex and flawed. Keeping this approach, 
but toughening up the policing, means creating yet more rules — and loopholes.

Better to think of each firm as a single entity. Then countries could either agree to 
share the tax on companies’ worldwide profits according to a formula that takes account 
of their sales, employees, assets and so on; or allow the entire worldwide profits to be 
taxed by the home country, with a tax-credit mechanism for countries where the work 
actually goes on or revenue is earned — but, crucially, not brass-plate jurisdictions 
— in order to avoid double taxation. In both cases, the incentives and opportunities to 
move profits into tax havens would be greatly reduced.

This is essentially a call for a move to formulary apportionment. And The Economist is not alone in calling for such a fundamental change to the international tax landscape: advocates include prominent tax policy organizations and Nobel Prize-winning economists.

And to be honest, a part of me wishes that they were right. Much could be said in its favor if one could magically endow the world with a coherent and consistent worldwide formulary apportionment system. But in the absence of such supernatural intervention, trying to switch to a formulary apportionment system would probably be worse than the alternatives.

An earlier post ("There Must Be Better Way, Right?") provides a fuller description of the reasons formulary apportionment is not as attractive an option in the real world as it is in theory. But in brief:

  • The transition from the current system to a system of global formulary apportionment would be difficult to coordinate and come to any international agreement about, making it chaotic and extremely costly for global businesses in terms of double-taxation and compliance.
  • A formulary apportionment system would create new incentives for multinationals to manipulate their business activities for tax reasons; current tax planning strategies would be replaced with new types of tax planning strategies that could be equally or more economically harmful.
  • Fluctuating exchange rates and arbitrary apportionment schemes would mean that global companies would see their tax bills in various countries oscillate randomly in ways that have nothing to do with their underlying business in those countries, imposing further real costs on global businesses.

I really do wish that there was a better way to figure out the tax bills of today's global businesses than our current reliance on the arm’s length standard. But as nice as it sounds in theory, formulary apportionment is simply not a practical, workable improvement on the current system right now.

What Others Say

"...strong technical expertise, yet they are innovative and always bringing us new insights."

"...great team players, good friends and we trust them...that's big for us."

"...very genuine, very focused and look beyond the politics and conflicts...that's a rare thing these days."

"...good communicators and they built a strong rapport, early on."

"It's rare to find a team that always looks at the bigger picture, what's best for the client and the relationship...and WTP is truly of that mindset."