Transfer pricing and tax havens | Taxes | Finance & Capital Markets | Khan Academy

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How a corporation can set up a tax haven and use it through transfer pricing. Created by Sal Khan.
Missed the previous lesson? Watch here: www.khanacademy.org/economics-finance-domain/core-finance/taxes-topic/corporate-taxation/v/is-limited-liability-or-double-taxation-fair?YT&Desc&
Finance and capital markets on Khan Academy: In exchange for being treated as a person-like-legal entity (and the limited liability this gives for its owners), most corporations pay taxes. This tutorial focuses on what corporations are, "double taxation" and a few ways that multinationals might try to get out of paying taxes.
About Khan Academy: Khan Academy offers practice exercises, instructional videos, and a personalized learning dashboard that empower learners to study at their own pace in and outside of the classroom. We tackle math, science, computer programming, history, art history, economics, and more. Our math missions guide learners from kindergarten to calculus using state-of-the-art, adaptive technology that identifies strengths and learning gaps. We've also partnered with institutions like NASA, The Museum of Modern Art, The California Academy of Sciences, and MIT to offer specialized content.
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Опубликовано:

8 окт 2012

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Комментарии : 259

@zachkim9929 12 лет назад

How in the world did he draw Map of USA so perfectly???

@abhinavsharma323 3 года назад

Paper cutting of the map and then drawing on borders

@maitrivyas5106 3 года назад

This video got me a job in Transfer Pricing 😃

@fatihaa9186 3 года назад

wait wait, is this real? I mean this video is very helpful tho, but dude that's awesome

@maitrivyas5106 3 года назад

@@fatihaa9186 yep in Big 4 that too :)

@fatihaa9186 3 года назад

@@maitrivyas5106 that's make your story more interesting for me, are you an accounting graduate or what?

@maitrivyas5106 3 года назад

@@fatihaa9186 eco, maths, stats triple majors

@fatihaa9186 3 года назад

@@maitrivyas5106 ok, this comment explain why u got that job haha. I thought u just a random guy without educational background, watched this video and boom! U got that job

@zoechia730 7 лет назад

Thank you, your explanation is much more better than my lecturer.

@vilisawonder 4 года назад

sometime better than my boss...

@zeleenne 3 года назад

The amount of videos I have watched from this professor (?) are countless. He explains things so thoroughly and so well. I love love love love love love these videos.

@ptmagrath 3 года назад

Companies are using IP (royalties, trademarks) as well as interest charges by leveraging up the company in the high tax country or management fees charged to the high tax company....or also increasing the price charged for goods ...raw materials, partially converted or finished goods. To round out the full story.

@ambrosiathe1 12 лет назад

Thanks again for the breakdown, Sal! I love learning from you and Vi! i only hope people keep this information in mind while they watch the Presidential Debates.....

@willofdodge1 12 лет назад

@khanacademy Can your next video be "solving US economy" please thank you

@bashkanabe5173 6 лет назад

Thank you very much

@philippevil5723 12 лет назад

ur very good at explaining stuff

@PaxImperium 12 лет назад

Correct! Money itself isn't an end, money is used to purchase things. Currencies can be transmuted into anything if you have enough, so it makes sense that Businesses would like to have as much money as they can so they can have more things, profit motive right there.

@TheTripMachine 4 года назад

Thank you so much the video was very useful

@sonixxxxx23 2 года назад

This was beautifully explained! so clear and concise, loved it!

@habibmaryam 2 года назад

Ermm...I understand this so well. Thank you for this video

@adonyz666 12 лет назад

this is a new series

@me_raghav5637 2 года назад

That was really a great explanation.

@foresthanke44 12 лет назад

I read it, I agree. It seems really agressive though, like you disagree with me on something, I can't figure out what though. That's why I'm asking you.

@PaxImperium 12 лет назад

Central Banking, Government regulation, tariffs go on Wikipedia and look up Keynesian theory, Done? Okay. In it's essence Keynesian Theory is if you increase Aggregate Demand on the short run unemployment will decrease, and total income and the standards of living will increase. This has been seen worldwide to work when properly administered, which is why economists strongly support Keynesian theory, because it works.

@munib1000 12 лет назад

NICE ONE SAL

@Mr18to87 12 лет назад

Cool

@FearMyLazerFace 12 лет назад

I don't understand how you can possibly imagine characterising the relationship between people, corporations and governments as simple. I am a musician myself, and just because music is abstract does not mean the concepts that someone has to learn in order to understand it on a functional level are complicated. Most concepts involved in teaching young kids music are things like how to read rhythm, pitch and so on, things that follow consistent, rules that are easy to follow once learned.

@frostguy9293 8 месяцев назад

Shut up

@xavier3961 12 лет назад

Another Great Video!!

@Dyslexic-Artist-Theory-on-Time 12 лет назад

This is all based on just one equation (E=ˠ M˳C² )∞ the Lorentz contraction of space and time is between the energy and mass. The greater the energy the greater the contraction of space and the slower time will run. Mass will increase relative to this and each ref-frame can be seen as a vortex in space formed by the rate that time flows. The brackets represent the boundary condition of the ref-frame formed by the energy and the infinity symbol represents an infinite number of ref-frames.

@PhullKnameNullContent 12 лет назад

A free market is a theoretical construct, like a perfect vacuum. I shudder to imagine what Romney truly believes.

@john-wo4rv 3 года назад

Lol

@user-jx3we5ty4u 6 лет назад

this vid helped me so much wow

@tylerkniess 12 лет назад

Thanks for the info sal!

@claudetgriffinjr 12 лет назад

Very interesting video well done. I've always wondered what was the real reason and how? Next video should be why are so many American companies in Iceland or one of those country's up in the north an

@chaitanyap4246 Год назад

lovely Explanation

@fajarsitinjak4997 4 года назад

There is also tax on cost you paid to another country. Say 20%, so in this case additional tax you pay is 20%of 800K = 160K

@FearMyLazerFace 12 лет назад

By contrast, something like the relationship between people, corporations and governments is immensely complicated and something that we simply don't have enough data on to make the short, simple, black and white assertions such as the ones you are making.

@FearMyLazerFace 12 лет назад

I never said I could teach music, and I don't see how that's relevant. The point is that I have enough understanding of the concepts required to learn music to make an informed judgement on whether or not your analogy is logically consistent and it isn't.

@ptmagrath 3 года назад

Many countries do not tax intercorporate dividends, pre-BEPS .....hence the need to additional rules to ensure Global Intangible Low Tax Income (GILTI) is appropriately taxed at a minimum rate

@vallyndumbe3655 2 года назад

very good explanation

@danoking69 12 лет назад

GREAT VIDEO PLEASE SHARE

@elecmahm 12 лет назад

I do agree with you on this point.

@fengxue6466 12 лет назад

very good thank you

@JR-zc5mq 12 лет назад

Purely... Purely

@polka678 3 года назад

Good explanation.

@sazdakhan8359 5 лет назад

Very helpful

@jorgevillalobos3269 12 лет назад

Fantastic! Great info!

@rhyme6300 Год назад

excellent explanation, where to find the video to talk about the repatriation?

@antitheist59 12 лет назад

Nice video, just one request, can you change your mouse icon from Hand to Pancil, it will look more natural while looking :)

@NavaidSyed 5 лет назад

I hate the term loophole. Money is always spent in a far better way when in private pockets.

@paralelo53 12 лет назад

Romney-nomics!

@AuroreAurora 9 лет назад

Thanks for the video, helped me a lot :-)

@vkain100 12 лет назад

Business school didn't teach me anymore than what was in the books. It looks good on a resume though.

@steeve3386 2 года назад

Where is the video that explains how to bring back that money tax free? Can someone please send me the link?

@bullsfan9162 Месяц назад

What if you did this transfer with another US state with a lower tax rate than the parent company? That way you can avoid the international regulations/bringing cash back in US

@Carebearbull 12 лет назад

If you were a student of economics you would have been well aware of the concept "Market Failure" That is, a free market creating an outcome which is not (pareto)efficient Types: - information asymmetries - non-competitive markets - principal-agent problems - externalities - public goods - natural monopoly

@tan4620 2 года назад

I was surprised by the title: transfer pricing and capital markets. I was wondered how to relate tax avoidance using related party transactions scheme to capital markets. It is hard to find a Professor in a university who has the expertises in both international tax and capital markets.

@elecmahm 12 лет назад

I think in order for us to have this discussion, we need to make the a priori assumption of "taxation occurs, and is obligatory to work/do business in the USA". Otherwise the discussion is going to continue to have some serious scope creep.

@seatown2000 11 лет назад

This guy has 3 degrees from M.I.T. and a MBA from Harvard i think he's doing more than just educating the poor. Vote for your own interests middleclass the rich certainly do.

@TheInspiredPlanet 4 года назад

I don't think there is a repatriation if the company is set up in Delaware or Nevada, or at least its minimized if that's where its set up.

@RenegadeFury 12 лет назад

that's a really good map lol

@joshuaronisjr 3 года назад

Why does the subsidiary get the 800,000 if they're the ones that were given the intellectual property...? Wouldn't it be the other way round then? I thought companies pay for the ability to use the intellectual property...

@donantonio5646 13 дней назад

Exactly can somebody please explain this?

@williamaulbach 12 лет назад

The government can pass all of the tax laws and close all of the loopholes that corporations use to get and keep profit. But it will always amount to very little. The amount of money that corporations have vs. the fed gov to figure out new ways to make/exploit loopholes is deafening. And corporations move at the speed of money, where as the gov has to wait months, years if not decades to 'fix' these loopholes. The problem with rich people is they are smart. Thats how they are rich/wealthy.

@222Randomness222 12 лет назад

government just, you know, makes food more available, keeps the world from going into chaos, and organizes people in a way that we naturally want to be in. Taxes are just, they make the world a better place.

@FearMyLazerFace 12 лет назад

If certain checks are in place(checks that are notably absent in the USA), it is possible to make government relatively free of corporate control and corruption, and to ensure they serve the people. If corporations aren't able to make huge campaign contributions in exchange for officials protecting their intrests, and the public is as informed as possible, the only thing that elected officials will be competing for is who can act in a way that is most approved by the public.

@PrincessTS01 12 лет назад

A shyster is a slang word for someone who acts in a disreputable, unethical, or unscrupulous way, especially in the practice of law, politics or business.

@omgiheartpie 12 лет назад

Taxation is not theft since historically every reasonably prosperous or secure group has eventually ended up forming some sort of political or governing institution to administer certain functions that are inherently intractable to carry out via the private sector.

@FearMyLazerFace 12 лет назад

Either you can keep all you money earned to yourself, or you can live in a country with roads, streetlamps, a court system, a functional police force and any number of other things that the government has to pay for, not both.

@Menegoth 12 лет назад

I didn't know Sal worked for Apple.

@l2ic3 12 лет назад

The role of a government is not to supply things the private sector cannot, but to regulate the way the private sector is allowed to work. You cannot have a capitalist economy without someone in control, making sure we don't fuck ourselves over, and keep the greed at least marginally in check. This is the role of the government, and I don't see how you could persist without it.

@TheMuscularSheep 12 лет назад

nicee

@Martinezj90 3 года назад

Where can I find the other videos explaining the avoidance of repatriation of funds?

@Xune2000 12 лет назад

It's time I got myself incorporated. All that money wasted paying tax needlessly.

@Dyslexic-Artist-Theory-on-Time 12 лет назад

Interesting video! This is an invitation to see an artist theory on the physics of light and time! This theory is based on just two postulates 1. Is that the quantum wave particle function Ψ or probability function represents the forward passage of time itself 2. Is that Heisenberg’s Uncertainty Principle ∆×∆p×≥h/4π that is formed by the w-function is the same uncertainty we have with any future event within our own ref-frame that we can interact with turning the possible into the actual!

@deadalusdx5637 8 лет назад

So how do you bring that money back to the US? Bitcoin?

@jamesblack993 6 лет назад

Deadalus DX AFAIK, you can't do it legally and tax-free. The most common way is to use the money of foreign subsidiary to invest into parent company, typically via loans. There are also more technical ways of doing it, such as entering into cost sharing agreements and such. The other common way is to pile up cash in foreign subsidiary and wait for the right moment to repatriate profits tax-free. They may use that time to search for new legal loopholes or wait for tax holiday which is quite likely to occur again since US is struggling with tax revenues.

@saso-gi9sy 6 лет назад

investment gold? d00h... digix dao and similar ethereum based ico's might be moving in your desired direction :)

@ThePorschefan 6 лет назад

Mmmm so the loan not only would be tax free, its interest payments would be deductible, interesting

@graceman1300 6 лет назад

JuanFernando Gracia the IRS has weapons to defend such transactions. The loan from foreign entity might be subject to Sec. 956 rules that consider the loan as investment in US property that requires immediate income recognition. Additionally, the interest expense generated by the US entity might not be deductible as it is subject to sec. 163j and related party rules.

@anotherks7297 5 лет назад

tariffs

@blahdeblah1975 6 лет назад

Khan Academy: Tools for the Caliphate.

@ronansher 12 лет назад

He said that free people shouldn't have to pay taxes. Fair enough, but without tax money none of what I listed gets provided. So instead people have to pay taxes; And to insure they do, imprisonment/death is imposed on those that don't. So, no imprisonment/death means none of what I listed, as people, evidently, won't pay taxes under their own volition.

@adhominems 12 лет назад

source plz.

@KingCadmos 12 лет назад

We used to be that way.

@FearMyLazerFace 12 лет назад

Yeah, that was one of the main reasons, but I don't see that that's relevent. My point was that the checks and balances in place in america to prevent a tyranical government from taking over the country have been pretty effective. This doesn't mean the american government is incapable of making mistakes, far from it. Treaty of Versailles was one of those mistakes. I would also like to remind you that the government of the USA was hardly the only one involved in the treaty, all the allies were.

@andreasprott2182 4 года назад

After more than 3 years of 45 do you still think the checks and balances are effective?

@Chiyenworkout 12 лет назад

35% corporate tax is insane! The nation that have less tax have higher growth.

@mariatiti8160 Год назад

How the subsidiary gets all the IP from the parent company?

@klimlib 12 лет назад

Seems only sustainable model in our times is scandinavic one, altough I can not fully comprehend it.

@Bunlizlaw 6 лет назад

This is really explanatory!

@imadalrawashdeh6853 5 лет назад

But in the case of publicly-traded companies, like Apple, that do transfer pricing like this, how does the public, that owns the company, gets its fare share of the profit if the profit is being transferred abroad to avoid taxes, given that if this profit gets repatriated and distributed as dividends, it would get taxed!

@gadget00 4 года назад

not every publicly-traded company pays dividends to stockholders. Your stocks goes up in value, and thats it

@wood9670 12 лет назад

I don't, that was the intended implication of my post. I am a market anarchist or voluntaryst. If you decide to respond and ask questions, please be courteous. I have given a lot of thought to my position. I recognize that it is not mainstream. And yes, I recognize the government currently provides services that people like, want, or need. I just believe the means by which they are funded and enacted are immoral, inefficient, and can be addressed differently.

@elecmahm 12 лет назад

But again - that is all an entirely different line of discussion. The point I made earlier is simply "a corporation does business in the US, but exploits certain rules so that it minimizes its obligation in a way that affects the rest of us", and I believe this is wrong.

@Gitohandro 9 лет назад

Explain that last part?

@emusic36000 8 лет назад

+Gitonga Mwaniki what last part?

@KingCadmos 12 лет назад

Corruption by definition is lack of control. How else would it exist?

@FearMyLazerFace 12 лет назад

Don't have to pay taxes. My income at present is below the no tax threshhold, and either way, all that would come my way is fines, in order to take back the money I was stealing from my fellow citezens by continuing to use public services while refusing to help pay for them and then imprisonment if I refused to pay those. But, then, I thought we were ending this discussion.

@klimlib 12 лет назад

OK. I called it a *model* although I based my statement on anecdotes told by my fellow countrymen who migrated to Sweden about good life there. If you consider separately social system and economy, and if you introduce notions such as culture or mentality, then how can you or any1 else form a scientific approach in economic thinking? I may take example comparing US and Mexico. Almost the same Constitution and political system, but big difference in wealth or quality of life? Mentality? Culture?

@222Randomness222 12 лет назад

The Pentagon is one building.

@KingCadmos 12 лет назад

How?

@l2ic3 12 лет назад

Sure, that is the case in America. But I am talking about in theory. A government is a requirement. Thus, the problem is the political systems used to alter the government, not the government itself. And political system that cannot be exploited clearly has not yet been devised. As soon as you know how to fix these problems, I would love to hear it. No sarcasm intended.

@PowerBosnia 4 года назад

Why not incorporating the company directly in Delaware or Wyoming?

@vignesh.n7744 3 года назад

They will still be in us servers

@tapranascer 12 лет назад

Conclusion: Raising corporate taxes kills small and medium businesses that do not have scale to have an offshore office. In addition, in the attempt to charge the big businesses that have a foreign office, it creates additional taxes for money to enter back in the USA, reducing the incentives for foreign investments to enter the country. Sounds like a good ideia.

@PaxImperium 12 лет назад

Yeah I wouldn't say music especially with students at 3 years of age would be particularly complex, I agree music can be abstract and require reflection and introspect, but 3 year old children I doubt seriously the complexity of your occupation. There's a good reason economists earn upwards 100K annually because their job is actually complex and a great deal relies on the accuracy of their predictions.

@FearMyLazerFace 12 лет назад

I never said anything to suggest that the government is above criticism, or that they should just be blindly trusted. The point here is that at least in theory, a moral government could exist. This is not true for corporations in a capitalist society. Corporations are amoral. They will do terrible, horrible things if it is profitable for them to do so. If they don't, their competitor does and outcompetes them. The only thing that has any power to prevent this is a government.

@jackrussel891 5 лет назад

How do you bring the money back without being taxed?

@moneyballmoves 4 года назад

Short of cheating the system, there isn't a way really. However, a company will probably still come out ahead by bringing back the money and paying the corresponding withholding/repatriation tax.

@FearMyLazerFace 12 лет назад

I have, and I'm sorry, but no president has ever been able to successfully gain absolute power. Never happened before.

@KingCadmos 12 лет назад

Progress is Regression. The third sentence ought to be the world. EXACTLY! Many governments were formed to protect us from other government. But then there must have been a first, one built not to protect but simply for greed, one that no longer exists. If that is possible in the first place, than your government is that way too. That would mean a fundamental mutation in the human psyche that gives up any government in the world and thus creates a perfect utopian society.

@FearMyLazerFace 12 лет назад

By what mechanism do you suggest people would be able to deal out retribution to corporations? In a government free system there would be nothing stopping them from gaining monopolies on things as basic as food and water, or from controlling large armed forces. You cannot boycott a company if they have a monopoly on clean drinking water and you can't attempt to fight a company that has a monopoly on weapons.

@Icyiceice1 12 лет назад

So how does the company repatriate the funds back to the US? Will they still be subject to 35% withholding on net profit repatriation.

@Heirophanteye 12 лет назад

I am not certain the overall economic rate for tax in Canada is lower than in the US.

@TheRawBabe 10 лет назад

good idea, but too slow

@PaxImperium 12 лет назад

incorrect, I'm not sure where this notion that Keynesian Economics is a bad thing came from, however Keynesian Theory works, and if you need proof look at Australia's economy who effectively used Stimulus packages along side with a loose monetary policy which shielded them from the GFC. And in context Heynes Theory which is polar opposite was rather popular with European countries especially in Greece and look where that's got them.