Our dumb dictator has used the words ‘transfer pricing’ as if he was sure he knew what it meant. He seemed to think it explained the whole problem with Fiji Water.
A friend of mine, a university graduate, was happy to admit to me that he didn’t know what it meant, so he asked me to explain it.
If such a fancy idea is important to Frank, it must be important, so I’ll give it a try.
What Frank is claiming is that the price that Fiji Water sells its cartons of water to its American sister company at is artificially low. It must actually cost more than $4 a carton to produce and therefore the profits made by Fiji Water in Fiji must be understated.
Frank isn’t basing this on any knowledge he has of producing water or any other product. What he’s looking at is the price he sees for Fiji Water on the shelves of US shops. It sells for more than other mineral waters, so Fiji Water must be understating the price.
But if this is true, all Frank has to do is get all the facts, all the costs that are recorded by Fiji Water and show where the true cost of production is understated. Is Golden Manufacturers Limited understating the cost of the cartons? Are the plastic bottles bought from a related party at an artificially low price?
This would be a routine job for FIRCA, who could use well established international guidelines for assessing ‘real’ costs. If Fiji Water didn’t meet the guidelines they could take them to court and order payment of higher taxes.
In fact this what Chaudhry started doing but the case stalled, no doubt when it was realised that FIRCA couldn’t establish the facts.
Ironically, Aiyaz’s too clever work with the Commerce Commission to control prices of food probably means that the regime has set very low benchmarks for business costs in Fiji.
What Frank doesn’t understand is that there are big costs in marketing anything, especially water in North America, where a very pure, safe product is available free from the taps. The only thing harder would be to sell ice to Eskimos. But anything can be sold if you have big enough commissions to sales staff.
CORRUPTION FIGHTER
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Understating value minimises tax liability here and import taxes elsewhere.
Fiji Water benefits.
A carton of Fiji Water is invoiced at 25 to 40 dollars US.
The windfall profits are made there while Fiji gets peanuts.
Fiji does not have clearly defined laws on transfer pricing hence the “resource” tax.
I see this being remedied shortly.
Chaudhry was correct all along but Fiji Water paid off and/or deceived people to get him fired.
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This is because the perceived “value” of Fiji Water as a product does not primarily come from the physical water resource itself!
Rather, it comes from the marketing “goodwill” that Gilmour and the Resnicks have been able to generate for Fiji Water. (Notwithstanding that “Fiji” had significant “natural purity” implications before they started. However, this perception would be destroyed for anyone who simply visited Fiji and witnessed our roads, our lack of town planning, our rubbish problem, and our squatter settlements).
Anyway, this is a branding and marketing issue, not a bricks and mortar one.
The proof of this pudding is that fact that if Fiji Water DOES close down and move its production off-shore, Fiji will NEVER be able to re-produce Fiji Water’s market success via any new “replacement” aquifer lease-holders.
There are many aquifer sources throughout the world that have better purity, total dissolved solids and taste ratings than Fiji Water. There are even some within Fiji itself. Why have these not been able to out-perform Fiji Water in the market. People who do not understand branding, or market momentum and dynamics (eg. all the post-2006 Cabinets) will never understand.
Better quality resource, or even the same resource, will not actually mean much to the non-connoisseur buying public. That is because their purchase decisions are based on the PERCEPTION of purity and value – which all reside in the brand. Fiji Water owns all the overseas trademarks for their brand – so they can move anywhere and re-use these (although not within some brand damage). Meanwhile, nobody from Fiji will be able to do the same (except perhaps within Fiji’s EEZ via a new decree).
But no “replacement” bottler in Rakiraki will ever be able notch even 10% of Fiji Water’s overseas sales because nobody there knows them from a bar of soap. They cannot even use the word “Fiji” in their product names in the US. But even that would be of questionable value since Fiji will have since become a by-word for greedy ignorance, instead of unspoiled naturalness. Thus is the “golden goose” cooked for good, and the lightning in the Fiji Water bottle lost forever. Even the Resnicks would not be able to re-create it.
So back to the resource tax issue. Since logically much if not most of Fiji Water’s market value comes from its brand (cultivated overseas by Gilmour/Resnicks), why should they pay extra tax on something which they got from their own marketing work. They are not mining existing value left by God in Fiji which anyone could have mined. They are trading on something they carefully built themselves!
So the question is – why do the Resnicks have to pay extra tax to bail out an illegal Government with large tax shortfalls which CAUSED their own revenue problems in the first place anyway by the coup and subsequent Governmental mismanagement that they broke the law to commit, and from which there has been NO worthwhile benefit?