Online education news: Khan Academy fail on tax havens and transfer pricing

The Khan Academy has had great success in providing free online education. Started by Sal Khan in 2004 to tutor his cousin in math remotely, it now has 10 million students a year, and is supported by the Bill and Melinda Gates foundation, Google, and Bank of America among others.

The Khan Academy website says

“We’re a not-for-profit with the goal of changing education for the better by providing a free world-class education for anyone anywhere.”

Unfortunately, the Khan Academy’s approach to tax havens is less evolved.

In this online tutorial, which has been viewed over 41 thousand times, an instructor explains in a didactic, neutral tone how a US company can reduce its tax bill by shifting profits to a hypothetical “island not too far off the US coast”.

It goes on to explain how to set up a tax haven subsidiary, “give it some intellectual property” and then use transfer pricing to assign profits to the tax haven:

“In theory there should be a way of deciding what is the fair rate for that intellectual property, but oftentimes that intellectual property is fairly unique so it’s hard to determine a market rate, which really just leads this company to decide it for itself.”

After what is, in fairness, a clear explanation of how transfer pricing can be used to lower tax payments, the video briefly recognizes that there may be some sort of dilemma with all this:

“Obviously if you do it a little bit too ridiculously it will get more and more scrutiny, so there is some balancing influence there.”

It then immediately moves on to the next problem of how to repatriate the offshore cash without paying tax, promising to address this in a future video.

There is now a Secrecy Monitor request for clarification on the tutorial page (sign-in required) pointing out a couple of additional facts about tax havens, such as their links to global poverty: with millions of users the chances of a response are quite low but thought it was worth a try.

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