Dynamics of Industrial Location
The Icelandic Aluminium Company (ISAL)
In chapter 7 there is a discussion of the deal between Alusuisse, an aluminium MNC based in Switzerland, and the Icelandic government. It might be additionally noted that ISAL obtains its alumina from affiliated mines in Australia. These supplies exemplify 'internally administered prices' (see Figure 7.4c) in that Alusuisse was essentially selling alumina to itself. In the early 1980s, however, the Icelandic government discovered that these internal prices were far in excess of what could be justified by the cost of alumina in Australia and the tranportation costs from Australia to Iceland. The government essentially argued that Alusuisse was charging 'phantom freight' (surplus profit) in order to inflate its costs in Iceland so as to reduce its taxation levels in that country. Alusuisse agreed to pay back taxes to help resolve this matter. This issue illustrates a common charge that resource based MNCs inflate costs at source to reduce royalty and taxation payments to governments and to create a source of paper profit.
A lengthy discussion of the ISAL case can be found in:
J B Skúlason and R Hayter 1998 'Industrial location as a bargain: Iceland and the aluminium multinationals 1962-1994', Geografisca Annaler 80B: 29-48.