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TNCs Hide Information

One of the biggest difficulties we face is that TNCs operate on a global basis, and their operations are very difficult for trade unions, activists and governments to monitor.

'Transfer pricing 'is one such problem. This refers to an accounting practice which can mislead governments and the public from understanding the true financial picture.

Within a multinational corporation, individual subsidiaries buy and sell goods and services to each other. This includes components for production, and management services and royalty fees for the use of trademarks. The corporation sets the prices for these sales/purchases. The prices are not set by the 'free market'. So, by manipulating the prices, a corporation can manipulate the accounts of its subsidiaries.

For example, say that in the Getrich Corporation. a subsidiary Getrich-A buys components from another subsidiary Getrich-B. If Getrich-A pays a high price, this will reduce its own profits. Pitching prices very high might even allow Getrich-A to declare a loss if, say, the Getrich Corp. wants to avoid paying a lot of tax.

Meanwhile another subsidiary Getrich-C can be charged low prices. This will to boost its profits. Maybe it is a new subsidiary which the Getrich Corp. wants to encourage. Or perhaps it wants to look very profitable so as to out-compete a rival. Getrich Corp. may be prepared to pay higher taxes on bigger profits if there are other benefits.

Not all corporations manipulate prices across subsidiaries. It can make it difficult to compare productivity with competitors. But in a 1995 survey of 210 TNCs, the international accountants Ernst & Young found that 83 percent had been involved in at least one transfer pricing dispute with a government.

It is very difficult for governments to monitor the practice and come up with accurate assessments for tax purposes. It requires many skilled tax inspectors. So, an exchange of information between unions in different countries can be an important way of keeping track of corporate pricing policy.

Remember that almost 40% of all world trade is taking place in this 'internal market' between the subsidiaries of TNCs. 40% of world trade is NOT in the so-called 'free market'.

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