By Robert A. Vella
The reason why progressives such as myself rail against the wickedness of corporatism is because it typically transpires out of the public view and is therefore a breeding ground for corruption. Americans like to believe theirs is a free and open democratic society based on the rule of law; but, because corporatist practices have become standard-operating-procedure for business executives and politicians alike, that belief is both delusional and works to shield such practices from scrutiny.
This close association between business and government is more widespread and accepted than traditional avenues of corruption through which secret quid pro quo deals are transacted between individuals or like-minded groups. Whereas the secrecy of these more personal arrangements often result from its contractual illegality, the hidden-in-plain-sight nature of corporatism often results from a fear of public shame. Just as a close-knit family might not want to openly discuss embarrassing details like infidelity or substance abuse, America’s hierarchical establishment doesn’t want any light shown upon its dirty secrets which it considers as an unavoidable practical reality.
Consequently, the damages inflicted by corporatism keep building up and have reached not only a point of crisis – in the form of social dysfunction – but also to the point where it is recognizable by the general public. Although public perceptions of it are frequently misconstrued and/or manipulated by various self-serving interests, a populist backlash has erupted without which someone like Donald Trump could never rise to political power.
We in the general public like to see ourselves as savvy to the wily ways of corporatism. However, once in a while something leaks out to rattle our complacency. I doubt most readers were aware of the following example of corporatism in U.S. tax policy.
Coca-Cola Co (KO.N) thought it had a deal with the U.S. Internal Revenue Service on how much the company charged foreign affiliates for the rights to make and sell Coke products abroad.
Then in September 2015 a letter from the IRS arrived at Coca-Cola’s Atlanta headquarters with a bill for back taxes whose amount, $3.3 billion, stunned the world’s No. 1 soft drinks maker.
Coca-Cola sued the IRS, disputing the bill. The case is being tried now in U.S. Tax Court in Washington. A verdict is not expected for some time after the trial ends, expected in mid-April.
The case is being watched closely by tax experts as a sign of rising tension between tax authorities and multinational corporations over transfer pricing, that is, the way companies value the goods, services, trademark and patent rights that they constantly move among foreign units across national boundaries.
An important management discipline inside multinationals, transfer pricing is under more scrutiny than ever before from tax agencies worldwide because of strict new global standards, raising legal risks for companies and their investors.
The Coca-Cola case goes to trial as interest among corporations in seeking multi-year deals with the IRS covering transfer pricing arrangements has fallen in the past two years.
The IRS reported on Friday that it received 101 applications in 2017 for “advance pricing agreements” (APAs), similar to 2016’s level of 98 in 2016, but well below 2015’s peak of 183.
APA applications also fell in 2016 in Japan, the top U.S. bilateral APA partner, according to the latest data.
Anecdotal evidence suggests the APA process, designed to prevent conflict, is under strain in many countries, with some tax lawyers citing Mexico, Italy and China as challenging.
Corporate tax directors at a conference in Washington earlier this month said APAs are taking longer to negotiate and government tax agencies are less willing to do them.
In an era of shrinking middle class prosperity, painful austerity measures, economic inequality, the demise of public education systems, the growing corruption of money in politics, institutional distrust, and cultural polarization, Americans can see their government caught red-handed favoring multinational corporations in its tax policies and meekly trying to back itself out of any embarrassment.