Another criticism of multinational operations relates to the way they often disguise excess profits and avoid paying appropriate taxes in their host nations through creative "transfer pricing." It has been estimated that a staggering one-third of world trade is intracompany trade. In terms
of value, each multinational corporation is often its own most important
customer, with one subsidiary buying from another. Such trading gives
the corporation great scope for manipulating profit figures for a subsidiary
in a given country. By buying materials from one fellow subsidiary
at high prices and selling its products to another at low prices, a subsidiary
can make an operating loss or a high profit according to the
impression it wishes to give to the outside world. Thus, the profits of
subsidiaries in high-tax countries may be kept artificially low and those
in low-tax countries inflated. Or profits can be switched from one industry
to another to take advantage of special incentives offered by host
governments. Such transactions often play a big part in the politics of
organization, especially in relation to negotiations with trade unions,
and in producing rationales for plant closure. The simple statement that
a plant is "unprofitable" is often backed by creative accounting that
deceives all but the most discerning members of trade unions, investors,
and members of the general public. Multinationals, like other organizations,
use accounting to shape perceptions of reality to further their
own ends.