“Imposing a tax increase” Transfer Pricing “and basing it on sale is confiscatory”

The Association of Retail Trade (ACDET), which is part of Walmart, defended the decision to the chain filed a lawsuit against the government and the law 72. Considers that the law is unconstitutional and arbitrarily penalize one company.

“Since April we warn the people that the measures were being discussed in the Legislature to raise taxes on some companies in the retail industry sector would be detrimental to the local economy and our call was that the tax reform or measures resulting legislation were fair for everyone. Imposing a tax increase transfer pricing and basing it on sale and not profit is confiscatory, and the scale of taxes imposed on percentage increases directly aimed at one of our associates, Walmart, which also resulted discriminatory, “he said Otero Lymaris advises ACDET address.

“It’s not that a company does not want to contribute to the economy and pay taxes as a matter of fact and Walmart pays more than $ 94 million in state and municipal taxes and remits more than $ 100 million in taxes on the sale and use (IVU) . What is at issue here is of a confiscatory tax, no sales tax on gains, “he added.

The economist Antonio Rosado presented a summary of why the application must prosper and which in principle is the only option that Walmart has to defend its operations on the island, keep jobs it generates. “We understand this discussion away important nuances and political speeches and see it objectively and empirically. Therefore summarize some points that economic theory can provide in this debate “, said the economist.

• In an economy in decline or stagnant, we should try by all means avoid raising taxes or adding new taxes; this is contrary to what this government has done. This increase to the “transfer pricing” tax will have the effect of increasing prices for consumers, reducing consumption on the island and therefore less in government revenues.
• Impose an estimated 91.5% effective tax rate, makes it the highest rate for any company on the island and is the highest rate anywhere else in the world where Walmart operates and even ordinary citizens believe that the populist large will contribute more, it is extremely dangerous for the continuity of operations in the Isle of any multinational business that is subject to this tax rate.
• Much of what has been said or presented so as diagrams, does not represent the reality of the transfer price between the companies in Puerto Rico and its parent companies in the United States, in this specific case of Walmart.
• The concept of income tax is not based on the turnover of a company, but corresponds to net income. In the specific case of Walmart Puerto Rico, he does not generate annual revenues of $ 2,750,000,000. This corresponds to turnover and not to net earned income. It is therefore important to consider that sales must subtract items in the product cost and the related costs of doing business in Puerto Rico such as: employee payroll, general and administrative expenses, depreciation of fixed assets , state and municipal taxes, electricity, water, rent, hauling and many others. Importantly, the tax impact can not be measured based on sales and the cost of operating a business is essential in determining the income tax and the critical point is demand to conclude that the tax is confiscatory factor. Therefore, although the total sales volume may seem significant, that number does not represent the profit of the company. To say that Walmart should pay 2% of their gross sales in contributions is demagogic because income taxes are not on gross income.
• The Vega Ramos representative indicates that the parent company sells to the subsidiary in Puerto Rico at prices very close to the price of retail, allowing the real gain is left in the matrix without properly taxed in the country where it was made final sale. That argument Vega Ramos representative is not correct as it consists us that the parent has a study which indicates that there is no manipulation of transfer pricing between the parent and the subsidiary in Puerto Rico. Transfer prices are eligible by the standards of regulations on transfer pricing penalty.
• The precedent which aims to establish the representative Ramos Vega is dangerous for the economy, since the national patent, which operated as a tax on gross sales, almost broke countless companies in Puerto Rico.
• One of the fundamental problems of the theory of tax incidence is related to the tax. Although the law recognizes the existence of corporations as a legal entity, it is not enough to determine the incidence of tax. To determine the incidence need a body. For example, in the case of the income tax individuals, the incidence is in individuals. The same applies to the value-added tax in a competitive market. However, that is not true for corporations. In a competitive market the incidence of income tax on corporations rests with consumers. The reason is simple, in a competitive market rate of return on capital is the minimum required by the industry. If the rate of return companies leave the industry is reduced, the supply decreases and prices rise until the rate of profit return to the conditions required by the market. In other markets income taxes on corporations, the incidence is a lottery. Depending on market conditions, the incidence may be on customers, suppliers, labor or business owners. Despite these terrible problems posed by income taxes on corporations politicians continue to use this mechanism because it is attractive politically as part of the electoral process.