The American Jobs Creation Act and Transfer Pricing Abuse

A transfer pricing review from one of the Big Four accounting firms notes that the The American Jobs Creation Act allows for deductions for income attributable to U.S. production activities. This review also notes that:

section 482 principles to allocate gross receipts between the different activities (for example, the activity of roasting coffee beans qualifies as production, but the activity of preparing coffee drinks at a retail establishment does not. Receipts from sales of coffee drinks can be allocated between QPAI and nonqualified receipts to the extent of the “value” of the roasted beans used to brew the coffee).

Recall that this tax law change was to remove the ETI/FSC/DISC means of subsidizing exports via tax deductions. Back on July 27, I argued under “A Cheesey Tax-Induced Export Subsidy with Transfer Pricing Holes” that some of the Big Four tax advisors were manipulating “section 482 principles” to source an absurd amount of U.S. based income into the distribution division of the company so as to increase its ETI deduction. Now that the tax law has changed, I suspect the same tax advisors are busily changing their tunes arguing that the distribution division creates very little profit whereas the manufacturing division creates most of the profit so as to increase their deduction under the new law.

The Republicans talk about tax simplification as a way to reduce the opportunities for such tax manipulation. Yet, they create laws that open up all sorts of loopholes and then they refuse to staff the IRS properly. I guess the good news is that the rent-seeking accounting firms need more staff. CPAs have to find some means to save for those massive future tax liabilities being created by this Administration.