Tuesday, January 14, 2014

Outsourcing ObamaCare and Transfer Pricing

Robert Oak is not happy with the decision to give Accenture the responsibility for running healthcare.gov:
We pointed out earlier that the failed Obamacare website was poetic justice as CGI Federal is also an offshore outsourcer of U.S. jobs. But now the poster boy for labor arbitrage, offshore tax havens, and bloated, often failed government contracts is in charge, Accenture ... Accenture is incorporated offshore and has been the subject of many a Congressional hearing on inverted companies incorporated in Bermuda or the Caymans to avoid taxes.
Mr. Oak spends a fair amount of time on the offshoring of jobs by Accenture before going into the tax issue. Accenture’s 10-K filing for fiscal year ended August 31, 2013 indicates that its average annual pretax income for the past 3 years has been $3918.5 million and that its average annual tax bill $941 million for an effective tax rate = 24%. This is not particularly that low for a multinational domiciled in a tax haven. But looking more closely at the details, a somewhat odd picture emerges. If we look at Accenture’s reported foreign taxes as a share of foreign sourced income, this ratio over this 3-year period has been 21.4% whereas its U.S. taxes as a share of U.S. sourced income has been 33.5%. The 24% effective tax rate should be seen as a weighted average of these two ratios with U.S. sourced income being less than 21.4 percent of worldwide income (on an average annual basis, U.S. income was only $837.1 million). Accenture, however, reports that 37% of its revenue is from U.S. business. How the share of U.S. sourced income was so low when 37% of its revenue was from U.S. sourced business is not clear from a reading of its financials as reported on this 10-K. One would have thought the U.S. still owned some of the worldwide Accenture intangibles so under arm’s length pricing we would have seen more U.S. sourced income. Then again as Mr. Oak notes – Accenture does offshore the responsibility for performing on U.S. based contracts.

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