My take on this is that Ireland is now willing to come into compliance because post-Brexit, they now have a monopoly on "urban core that could sustain an HQ for multinationals in a natively-English-speaking country in the EU."
In other words, they relied on tax advantages as a differentiator for companies to choose Dublin over London for their EU HQ. But now, what would you choose if not Dublin? Obviously Paris and Berlin are candidates but if you're a straightforward multinational, or certainly a company that is actually based/headquartered in the US, you're going to experience a lot less of a shock in a natively-English-speaking country.
So it seems to be that Dublin wins now, tax advantage or no tax advantage. Which likely makes drawing the ire of other countries for being a "haven" less worth it.
Official Ireland were dragged into this kicking and screaming. There really wasn’t much choice involved - unless the OECD brass were thinking in generous terms towards Ireland. If anything I’d say the timing of this is in part what drove Brexit - this has been coming for a few years now and “City”* of London is one of the worlds biggest hubs for processing funny money.
* This is the somewhat cryptic name for the financial services enclave in the middle of London City.
The "City of London" (also referred to as the square mile), whose proper name is "City of London Corporation" is a roughly square mile in the centre of London that closely matches the area of the Roman settlement of Londinium. Given it's age and heritage it has many foibles; it is its own ceremonial county, it has its own police force, it has quixotic ownership of lands (and sometimes even entire towns) outside its own borders (the city of Londonderry / Derry in Northern Ireland used to be wholly owned by the City of London, hence the name Londonderry). The City of London is a strange and almost anachronistic collection of a few dozen blocks surrounded by the much larger Greater London. Read up on it, it has some very interesting and strange history.
It's not just a financial services enclave. The City of London proper is a whole other thing unto itself. For an interesting read, check out what it takes to become the Lord Mayor of the City of London. Quite a trip.
Why? This comment is not about Berlin or Paris, it is mentioning then as examples of non English speaking cities. Is the author supposed to mention every city in Europe?
Not that anyone is still looking at this thread, but since I looked up some statistics out of curiosity: I think Portland, Oregon, not counting the part of the metro area in Washington, might be a decent comparison. Dublin city is a bit smaller in population but also quite a bit smaller in size. Oregon is a bit less than the population of RoI and Oregon + Idaho a bit less than the whole island (although much larger in area; Ireland is more like the size of the panhandle of Idaho). Also, Ireland (the island) is about the size and population of Tennessee and the Nashville metro area looks similar to the Dublin metro area (Greater Dublin on Wikipedia that looks closer to what is considered metro area in the US). The city of Nashville is larger in population but much larger in area (even compared to Portland).
I think one possible downside is the amount of major datacenters in such a small space. It's about 7 or 8? And you've got Facebook, Amazon, Google the likes. Recently there was almost a blackout in the city cause the grid just couldn't handle it after we got rid of the peat burning power stations
Everyone came on board this agreement. I'm guessing that there is enough wiggle room that low tax jurisdictions can still operate without much problem. Also, I think that defacto the 15% will become a maximum, not a minimum, similar to how posted speed limits are defacto minimums not maximums.
I don't think you realize which Ireland you are talking about. There's Éire which is the Republic and there is also Northern Ireland, which is the UK bit in Britain.
they are obviously talking about the one the article is also about. The other one is btw part of a country that joined the discussed agreement already at an earlier time.
With Hollywood Accounting[1], you make taxable profits transform into untaxable expenses that you pay to yourself for services you rendered to yourself, and Ireland has been a common destination for this sort of money to flow.
Hollywood accounting can take several forms. In one form,
a subsidiary is formed to perform a given activity and the
parent entity will extract money out of the film's revenue
in the form of charges for certain "services". For example,
a film studio has a distribution arm as a sub-entity, which
will then charge the studio a "distribution fee" — essentially,
the studio charging itself a sum it has total control over and
hence control the profitability report of a project.
Essentially, Apple USA makes billions selling iPhones in the USA, then pays those billions to Apple Ireland for the right to put little Apple logos on iPhones. Likewise, Google USA pays billions in US ad sales profits to Google Ireland for the right to use Google tech for Google search.
When the Irish loophole closes I'm sure they'll think up another "One Weird Trick" to make taxable profits mystically transmute into untaxable expenses.
Or they could tax sales / consumption instead of trying to tax company profits.
Company profits are just a bit too nebulous to tax properly.
Eg you can reduce your profits just fine by shifting your capital structure from being financed by equity to being financed largely by debt. (And as we all know, too much leverage is not all that great for the resilience of the economy.) That doesn't even need any Hollywood accounting, it's very orthodox accounting.
Yet, we keep pushing companies in that direction with the incentives that most tax systems around the world set.
The extent to which you can take a sizeable cut of corporate profits by taxing land / real estate is pretty limited because many profitable companies don't need much real estate. There is no rate at which you can sufficiently tax Netflix, Apple or Jane Street just with LVT while not impossibly over taxing most other businesses that use more real estate per dollar of corporate profit. And the solutions to that are not any better than those that are based on taxing corporate profits directly.
Probably, but it does seem over the last twenty years there has been real actual effort to close loopholes. It is slow which can be frustrating, but we’re also talking about changing the way many businesses work and quite complex topics which are not always obviously right or wrong.
I've always been baffled as to how this is seen as a multi-national issue. The US could always implement unilateral minimum VAT and profit[3] taxes on corporations forcing them to effectively pay whatever proportion the US demands to continue doing business in the world's largest consumer market. Just because you're only paying 3%[1] profit[3] tax in Bermuda doesn't mean you can necessarily skate around the remaining 12% when doing business in the US - the US could just pocket that additional 12% if nobody else wanted it. Implement a policy like that and the competitive tax advantage of havens disappears overnight and all this BS disappears.
We[2] have tax loopholes because we want to continue to have tax loopholes.
1. BS example I'm unfamiliar with the actual numbers.
2. Where "We" is lawmakers or maybe society as a whole as weighted by political power.
>A tax on revenues would kill a lot of high growth businesses
And also low-margin businesses. If you tax a business on its total sales rather than profits, a low-margin and high-volume operation cannot survive as easily.
Example. A supermarket chain makes many sales, collecting average 5% margins on a sale. A seller of high-end automobiles moves fewer units, but can take a 15% margin. Assume both businesses make the same $1m sales in a year.
If you're taxing profits at 20% the supermarket pays $10k on $50k profit while the car dealer pays $30k on $150k profit, for a total tax take of $40k.
If you're instead taxing total sales at 2%, each will pay $20k on their $1m sales. The same total taxes were raised, but the tax burden (at least in terms of retained earnings that are now available for reinvestment) has fallen differently. The supermarket is paying 40% of their profits in taxes, the car dealer is paying 13.3% of their profits in taxes.
And if a business makes only 1% average margin on their sales, they are underwater by this scheme. ($1m sales, $10k profit, $20k tax).
> Governments want to tax profits rather than revenues
Yes, but Hollywood Accounting[1] transforms taxable profits into untaxable expenses. (Search this discussion for 'Hollywood Accounting' for a longer post I made.) A revenue tax is more difficult to game with creative accounting methods.
I mean, VAT is not a tax on revenue, it's a tax on added value. In essence it's a form of profit taxing already.
If you buy $10 of flower (including VAT) and turn it into $15 of bread (including VAT), you effectively only pay value added tax on $5. If you're generating no real margins and just have a lot of volume, you're effectively also paying no real VAT.
> A tax on revenues would kill a lot of high growth businesses.
A tax on revenues would also kill a great many low profit businesses
Oil and gas extraction: -7.6%
Support activities for mining: 0.6%
Beverage manufacturing: 0.8%
Grocery and related product merchant wholesalers: 1.9%
Lawn and garden equipment and supplies stores: 2.0%
Miscellaneous durable goods merchant wholesalers: 2.3%
Petroleum and petroleum products merchant wholesalers: 2.4%
Grocery stores: 2.5%
Automobile dealers: 3.2%
Building material and supplies dealers: 3.2%
Continuing care retirement communities and assisted living facilities for the elderly: 3.3%
Other motor vehicle dealers: 3.3%
Home furnishings stores: 3.3%
Furniture stores: 3.4%
Beer, wine, and liquor stores: 3.4%
You probably have to be very clever to set this up so they can't be Company A (US) Ltd registering very little profit as they have to pay royalties to Company A (Tax Haven) limited without also inflicting massive collateral damage to smaller companies that can't afford the tax lawyers or preventing foreign companies from selling anything in the US.
Yeah, this is the real problem. It is hard for a law to disentangle whether payments to a foreign company are market rate purchases from an independent supplier (that can't be taxed due to free trade treaties), or transfers of profit to an affiliate shell company
Lets not do that, We have enough hidden taxation in prices as is it, I am not a fan of this style of taxation as it allows for government to increase taxes (and prices) on consumers while never having to answer for those increases because the people take it out on companies and vendors not on the government where their anger belongs
VAT taxation is terrible and should always be opposed
3) Part of the Euro zone (less important than #1 and #2 to be sure).
Given the OECD tax agreement there are fewer low-tax destinations for companies to pick from. And because of Brexit there are no other English-speaking EU countries.
Companies in Ireland aren’t going anywhere and it remains a pretty good option for any new HQs looking to expand into Europe. Ireland is just making more money off of each of them.
Of course. Cartels are always about reducing competition. Even if a cartel between countries like OPEC or this agreement. Irland just killed the competition
Government should prove it can spend the money well before asking for more. The waste and incompetence I see in government is astounding. It's much worse than anything I've seen in private corporations.
Speaking specifically for America, the government can barely even agree on where it wants to spend its current "budget".
Say you have a couple who constantly fights over how to spend their $10m/yr budget, of which nearly half is borrowed, and 11% of which is spent on policing their entire neighborhood. Each year, they nearly default on their debt because they can't agree on a budget for the next year to keep paying interest.
You wouldn't give them even more money to solve their problems, because the problems are clearly with the amount and poor allocation of their spending. Why would you do the same with the US government?
I have never heard anything worth remembering come form trying to argue about government spending or fiscal policy by treating it like household budgeting.
It’s kind of like if people argued that a bridge construction must be unsafe because they tried to make something similar in their kids sandbox and it fell apart when it got wet.
This is not about asking for more money. This is about companies cannot fleeing rational tax rates of normal countries into countries which specialize in "stealing" the companies from normal countries and making this their code business.
Why shouldn't people or companies be able to move where they can grow, prosper or have rules according to their values or projects? Curiously, when we talk about taxes the focus is often in the country that is harboring people instead the one that made itself unattractive.
Surely all this does is makes offshore tax havens all the more attractive? Sure, some of them have signed up (i.e. Panama), but if they are not ditching the territorial taxation system, it changes absolutely nothing for them, and even if it would, Panama absolutely does not care about enforcing the exising law regarding taxation.
Sure, the companies will have to pay a bit more to their lawyers, but the way I see it, is that all it does is making offshores even more attractive.
this will push most countries to compete towards 15%, and 'legitimizes' 12.5% corporate tax that other countries in the EU have. If it s no longer seen as punishable offense to move profits to malta, cyprus, bulgaria etc, lots more companies will do it.
Readit News
In other words, they relied on tax advantages as a differentiator for companies to choose Dublin over London for their EU HQ. But now, what would you choose if not Dublin? Obviously Paris and Berlin are candidates but if you're a straightforward multinational, or certainly a company that is actually based/headquartered in the US, you're going to experience a lot less of a shock in a natively-English-speaking country.
So it seems to be that Dublin wins now, tax advantage or no tax advantage. Which likely makes drawing the ire of other countries for being a "haven" less worth it.
* This is the somewhat cryptic name for the financial services enclave in the middle of London City.
I'm sure soft power pressure from the EU was a big factor in this, sure. But they weren't forced to as such.
Imagine moving Wall St from NYC to Austin TX.
If UKoGBnNI decided to set a low tax rate ...
The name of the state is not the Republic of Ireland - that is the description of the state.
Additionally, we don't call Ireland Éire unless we're conversing in the Irish language.
Essentially, Apple USA makes billions selling iPhones in the USA, then pays those billions to Apple Ireland for the right to put little Apple logos on iPhones. Likewise, Google USA pays billions in US ad sales profits to Google Ireland for the right to use Google tech for Google search.
When the Irish loophole closes I'm sure they'll think up another "One Weird Trick" to make taxable profits mystically transmute into untaxable expenses.
Eg they could tax land value. It's very hard to move land out of the country or hide it. https://en.wikipedia.org/wiki/Land_value_tax
Or they could tax sales / consumption instead of trying to tax company profits.
Company profits are just a bit too nebulous to tax properly.
Eg you can reduce your profits just fine by shifting your capital structure from being financed by equity to being financed largely by debt. (And as we all know, too much leverage is not all that great for the resilience of the economy.) That doesn't even need any Hollywood accounting, it's very orthodox accounting.
Yet, we keep pushing companies in that direction with the incentives that most tax systems around the world set.
Remote work would be their solution.
Should countries not compete with each other and simply bow down to accept whatever corporate taxation rate the Americans tell them to have?
We[2] have tax loopholes because we want to continue to have tax loopholes.
1. BS example I'm unfamiliar with the actual numbers.
2. Where "We" is lawmakers or maybe society as a whole as weighted by political power.
3. Edited: s/revenue/profit/
And also low-margin businesses. If you tax a business on its total sales rather than profits, a low-margin and high-volume operation cannot survive as easily.
Example. A supermarket chain makes many sales, collecting average 5% margins on a sale. A seller of high-end automobiles moves fewer units, but can take a 15% margin. Assume both businesses make the same $1m sales in a year.
If you're taxing profits at 20% the supermarket pays $10k on $50k profit while the car dealer pays $30k on $150k profit, for a total tax take of $40k.
If you're instead taxing total sales at 2%, each will pay $20k on their $1m sales. The same total taxes were raised, but the tax burden (at least in terms of retained earnings that are now available for reinvestment) has fallen differently. The supermarket is paying 40% of their profits in taxes, the car dealer is paying 13.3% of their profits in taxes.
And if a business makes only 1% average margin on their sales, they are underwater by this scheme. ($1m sales, $10k profit, $20k tax).
Yes, but Hollywood Accounting[1] transforms taxable profits into untaxable expenses. (Search this discussion for 'Hollywood Accounting' for a longer post I made.) A revenue tax is more difficult to game with creative accounting methods.
[1] https://en.wikipedia.org/wiki/Hollywood_accounting
If you buy $10 of flower (including VAT) and turn it into $15 of bread (including VAT), you effectively only pay value added tax on $5. If you're generating no real margins and just have a lot of volume, you're effectively also paying no real VAT.
The difficulty is with cross-border transactions.
A tax on revenues would also kill a great many low profit businesses
from https://www.lendio.com/news/small-business-outlook/most-prof...Deleted Comment
Lets not do that, We have enough hidden taxation in prices as is it, I am not a fan of this style of taxation as it allows for government to increase taxes (and prices) on consumers while never having to answer for those increases because the people take it out on companies and vendors not on the government where their anger belongs
VAT taxation is terrible and should always be opposed
Multinational companies chose Ireland largely because:
1) Low tax basis
2) English speaking EU country
3) Part of the Euro zone (less important than #1 and #2 to be sure).
Given the OECD tax agreement there are fewer low-tax destinations for companies to pick from. And because of Brexit there are no other English-speaking EU countries.
Companies in Ireland aren’t going anywhere and it remains a pretty good option for any new HQs looking to expand into Europe. Ireland is just making more money off of each of them.
Both are pretty small though.
> No change to the 12.5% rate for businesses with revenues below €750 million
Speaking specifically for America, the government can barely even agree on where it wants to spend its current "budget".
Say you have a couple who constantly fights over how to spend their $10m/yr budget, of which nearly half is borrowed, and 11% of which is spent on policing their entire neighborhood. Each year, they nearly default on their debt because they can't agree on a budget for the next year to keep paying interest.
You wouldn't give them even more money to solve their problems, because the problems are clearly with the amount and poor allocation of their spending. Why would you do the same with the US government?
It’s kind of like if people argued that a bridge construction must be unsafe because they tried to make something similar in their kids sandbox and it fell apart when it got wet.
Some of the US states operates one of the biggest tax havens in the world, is the US govt going to shut them down?
Sure, the companies will have to pay a bit more to their lawyers, but the way I see it, is that all it does is making offshores even more attractive.
assuming they don't get sanctioned and/or tarrifed.
For example I doubt airbnb could pull its Ireland trick on EU countries from Panama (otherwise they'd already be doing it)
https://news.in-24.com/business/167774.html