> The tax strategies these companies use are known
Links to an article from 2017 about a tax loophole that was closed in 2020 [0]. As an Economist that by his Wikipedia article [1] dedicates so much of his time talking about the Irish tax regime, he should be well aware of this fact.
You are talking about the "Double Irish", which was scotched (sorry) in 2020 by Ireland.
The link under your quoted line in the TFA seems to be talking about Apple (and others) preparing for the end of the Double Irish by finding other tax havens.
"Elite tax advisers help Apple Inc. and other corporate giants skirt impacts of crackdown on 'Double Irish' maneuvers."
So, I don't see what's invalid about the TFA's point, which is about tax avoidance in general
As someone close to pharmaceutical manufacturing, the reason why the manufacturing is done in Ireland is for tax benefits for sales in Europe.
So why not have a US factory for US sales? Because it's much more expensive and complex to have two separate factories making the same drug. It's far easier to just scale the Irish factory to serve all global sales.
Even the same companies with Irish factories have US factories as well. It's not like any tax benefit moved that out of the US as well.
It is also kind of an odd article because his assertion "After the 2017 Tax Cuts and Jobs Act (TCJA), imports from Ireland soared." is not at all borne out by graph that immediately follows.
Switzerland is a whole different matter, but such carelessness doesn't improve trust
Right, the graph shows a continuous increase since 2017, which tracks the growth of the worldwide pharmaceutical industry in general ($800b in 2016 [0] to $1.4t in 2024 [1].) So actually, the proportion of pharmaceutical imports that were from Ireland remained constant until a spike in late 2024.
And then there's this:
> The top seven pharmaceutical companies are paying $10 billion or so in tax on their $70 billion in offshore profit. They are just paying all that tax abroad.
So these companies already pay 14% in corporate tax. In the US, they'd pay 21% headline rate, but with room for deductions (I can't find a good source for what they actually pay, but here's [2] a bad source putting the R&D deduction alone at $15b/year across the top 8 companies). This 21% changed from 35% in the 2017 act the article criticises, though some deductions were also reduced. So corporate tax can't be the main differentiator here.
It's nice, for balance, to see an article that says the problem with Trump is that he just isn't protectionist enough. But the arguments here don't hold up.
And there we go, people actually using “trade imbalance” as a valid economical concept. If you let clown dictate your vocabulary, you’ll be spitting confettis in no time. Please be smarter than this.
There is no such thing as trade imbalance, it’s called trade, if you have more money, you buy more.
It's not only funny as f but also scary and sad to see people who could be smarter than this falling for orange man and his words and actually dare to repeat them internationally, not only confusing everyone that doesn't know about Americas misleaded ideas but also enforcing the idea that any of this makes any sense anywhere else than in orange mans head.
Well, more money flows in one direction in such cases, which might or might not be intended. As long as there's enough influx of money from other places, this can even be long-term sustainable (e.g. a triangle of trade).
It seems that China is currently a "sink" in the global flow of money, which will obviously change the landscape in the long run. How? Hard to tell, probably not in such a bad as many people fear.
I think it will eventually drive up prices of Chinese export goods, which will force importers to look for alternatives, which is likely better in many regards than having one country manufacturing everything for everyone in the world. But don't trust me, I'm just a random poster on the internet.
The issue is the framing itself, calling it an imbalance or deficit, when it’s way more complicated than this. It’s a really good strategy to frame the issue in your advantage. Doesn’t make it useful or meaningful
Marx theory of equivalence of exchange is the foundation with which he defines exploitation. With a universal comparison unit (value of labor), you can define unbalanced trades.
Dont ask me though, how a balanced trade would look like. Maybe we can only approximate it via outcome.
Simple ideas work to get simpletons onboard, and one needs their vote and support to do anything. You are criticizing the greatest political communicator that has existed in history and will be studied and tried to be replicated for a long time to come.
Sounds a little hyperbole, I would argue it’s more a political strategy based on very smart use of technology, some brilliant strategists that know their base (I hate Banon but the man knows his stuff) and a mummified Democratic Party. Hitler, to cite one, was so much better communicator than trump, without the brain farts
I firmly believe we need revenue apportionment of profits. By this I mean that if you have $100 billion in revenue and $80 billion in costs then you have $20 billion in profits. If half that revenue ($50 billion) comes from sales in the US then half that profit ($10 billion) is taxable US income.
You might be tempted to argue they'll use subsidiaries to shift profits but we already have ways of dealing with that. We also have earnings that get reported to financial markets so you can always use the baseline revenue and earnings numbers from that.
We have ways too of dealing with transfer pricing and profit-shifting.
How far do companies get if they can't report earnings to the markets? Or if they try and tank earnings to reduce their tax liability?
You might be tempted to ask "what about private companies?" Subject them to the same reporting standards and auditing requirements of any US-listed company or they don't get access to the US market.
This idea that companies can't be taxed because they're too clever needs to die. So does the idea that they shouldn't be taxed. Governments, particularly the US government and the EU, wield extraordinary power. You can bring companies to heel by withholding access to a market pretty quickly.
It's why I always laugh when companies threaten to abandon a market. As long as there is profit to be made, a company will never leave. Non-IP assets can't generally be picked and moved so you always hold sway over a significant portion of their assets. And the US has the additional power to withhold access essentially to the global financial system.
And of course governments always have the option of nationalizing industries.
Governments should serve the interests of their citizens and corporations should serve the interests of those governments. Governments should not be subservient to corporate interests. Unfortunately, the US government at this point is basically just six companies in a trenchcoat.
This would heavily encourage exports and disalign the company's incentives with the nation's.
I do, however, this could be a good idea. But I think the true issue is that we need a globally unified tax framework (and serious retaliation if a nation decides not to adopt it).
100%. All of these schemes depend on the existence of a jurisdiction with low (or non-existent) corporate taxes that they can shift profits to in order to avoid paying taxes in the actual jurisdictions in which they manufacture and sell. Doesn't matter whether at its core it's a transfer pricing scheme, an IP royalty scheme, or a thin capitalization scheme. You need a man (country) in the middle with low/no taxes where you will recognize the profit you don't want taxed.
It was interesting to read how much of the US drugs market relies on imports. The article deals with the high value stuff. However, by volume, 90% of drugs used in the US are cheaper generics often with no US manufacturers. The US is heavily reliant on India and ultimately China for both active pharmaceutical ingredients and key starting materials. With 80% of Indian production using starting materials from China.[0]
The US had no domestic production of penicillin between 2004[3] when its last plant shuttered until 2021 when a factory reopened.[1] (source 1 and 3 appear to contradict, the 2019 testimony states there was no manufacturer after 2004 whereas it sounds like the plant closed in 2020, regardless the domestic capability is extremely weak)
As usual for American sources this is painted as some nefarious scheme by the evil red Chinese to destroy America by making cheaper drugs available. To add my own editorialising I think US companies are easily capable of ruining US manufacturing and focusing on screwing US patients over.[2] The average citizen should probably be glad of low cost Chinese supply, but nurturing domestic capability as per Biden is sensible.
It’s so ironic. Just a couple weeks ago he was touting how he’s getting drug prices down. Except the tariffs kicked in, and now we’re going to be paying 50% more for those generics. If this were a chess move, we just lost our rooks.
To continue the analogy, if the US lost a rook, everyone would take notice "damn that was a big blow".
I think it's more like losing a pawn. Except now others have taken 3 unanswered pawns and everyone said "eh we've still got our queen" but now the queens are looking shaky and you're staring down a 3 pawn short endgame and no one believes you can turn it around.
He claimed to bring prices down while (not after or before) increasing prices for meds from Switzerland for his people. With very little consequences on the Swiss market.
Can someone explain why the Netherlands are included in the graph of low tax juristictions? As far as I know their corporate tax rate is 25.8% which is larger than the 21% us rate.
I think it has to do with the fact that you can export tge profit to friendlier jurisdictions afterwards.
For this reason a lot of tech companies have subsidiaries in the Nerherlands. Uber is the first example that comes to mind. All card charges when you take an Uber in Europe are to Uber N.V - which is a Dutch Entity.
Those corporate taxes are only paid by small companies.
The Netherland has a decades old strategy of being "business friendly" - if you're a huge corporate.
This culminates in two things. One, The Netherlands has the most tax treaties of any country. This creates many loopholes.
Two, The Netherlands Tax Authority will happily help you take advantage of those. You just have to call them up and say "I plan to sell and lease back some IP through Swasiland, is that OK?" and they will tell you up front whether the loophole you found is OK to use - it's called a "ruling" and it's binding to them. This takes away any concern your tax lawyers might have about being thrown in jail for being too creative.
The basic idea is that The Netherlands would rather help a big corporate avoid paying 10% tax in another country, if it means they pay 1% in The Netherlands. Or even 0% corporate taxes and only some payroll tax for the people working at the Dutch office (job creation for tax lawyers who, as established earlier, lead a stress-free life).
A while back, some executives from the Shell oil company appeared on Dutch television proudly saying "of course we don't pay taxes! Why else would our HQ be here?". This was a bit too rich even for the Dutch viewers, and Shell ended up moving to the UK, presumably after some of their tax rulings got a second look due to political pressure. Unilever similarly left to the UK (who were also giving out tax deals like candy after Brexit ruined their economy).
Note that the author is conflating The Netherlands being a tax haven (which it is) with the location pharmaceuticals are produced.
To take advantage of Dutch tax avoidance strategies, most companies focus on intellectual property; this is why your IKEA pitches has "copyright InterIKEA systems B.V." printed on it. Made in some low wage country, but the license fees for its design are paid to a Dutch for-profit company owned by a non-profit(?) foundation.
In other words, it's easier to produce pharmaceuticals in, say, the Phillipines, and then do some shady (well, pre-approved) accounting to make taxable income disappear into thin air. There's also going to be some importing and re-exporting going on (guess which EU country is home to its biggest port, despite being a tiny country).
Nevertheless, pharma production - or rather "life sciences" - in The Netherlands is one of the governments 9 focus industries. This policy is focused mostly on high-value add activities like R&D rather than production. This will also skew the numbers.
> The basic idea is that The Netherlands would rather help a big corporate avoid paying 10% tax in another country, if it means they pay 1% in The Netherlands. Or even 0% corporate taxes and only some payroll tax for the people working at the Dutch office (job creation for tax lawyers who, as established earlier, lead a stress-free life).
This is actually pretty smart on their part.
What most countries don't want to accept is that when the cost of business is too high, companies will either pack up and leave or pay tax advisors on how to move every cent of profit to another country that is business friendly and their dreams of collecting billions in tax remain just that, dreams.
I've said repeatedly, that medications and medical equipment should have a requirement of at least 50% domestic production (end to end) and dual sourcing in the US. Just from a security standpoint. That should have been the lesson of the COVID pandemic.
I feel similarly for infrastructure and communications as well.
Is this 'round-tripping' thing just a fancy term for why my parents' medication costs more than a car payment? Just trying to connect the dots from their balance sheet to my wallet.
Not at all. It only explains why a pharmaceutical company has an overseas office.
Your parents medication cost more than a car payment because there's no motivation in the US system to reduce prices for most drugs. Quite the opposite for insurers who provide ACA--they're actually incentivized to increase the cost of care so that the 20% they are allowed to spend on marketing, executive compensation, etc can grow as well.
I can't tell if this is trying to say the ACA should have set it to 0% so there is no incentive, if there is supposed to be something special about 20% which makes executives greedy but at 100% they'd have no interest in trying to make a bigger bonus, or if I'm missing something else completely. I feel like it has to be the latter, I just can't figure out what.
We should make insurance companies not allowed to negotiate special pricing for drugs and hospital expenses, and make everyone pay the same regardless if it goes through insurance, which insurer, or out-of-pocket.
Then the cost intensive flips. Insurer wants cheap healthcare and drugs so that they won't have to pay as much. This was part of what the original "affordable care act" tried to do, but was ultimately removed from the version that was passed.
It's also how insurance works by default almost everywhere except in the US.
Not really, that’s mostly down to how your country does a terrible job a negotiating drug prices compared to other countries with socialised healthcare. On the upside if you’re rich you get the best care in the world.
Your parents medication costs more than a car payment because developing medication is expensive. Developing medication is expensive partly because it's just innately expensive, but mostly because going through the bureaucracy of getting it approved is really expensive. You want cheaper medicine? Then make that faster and cheaper. But there are tradeoffs.
The us spends more money on healthcare per capita than any European nation (including those with tax funded healthcare). Yet the very same drugs are cheap over here. The very same drugs Europe produce, put in airplanes and fly over to the US for the US market.
Are Europe just better at R&D then? Does Europe have more lax medication regulations? That is what your argument would suggest. But i somehow doubt that.
Looking at the share prices of the top medical industry companies in the US, from insurance to medicine production to private hospitals, it would seem there is plenty of margin going elsewhere for some reason.
Are we also ignoring that a lot of medical R&D is funded by grants and government investment? Its odd how the pharmaceutical companies are sooooo strained for money from the (partially already paid for) R&D that they have to take out a 600% margin on the product to cover it for decades after the drug has been on the market.
But it's clearly the famously harsh American bureaucracy that cripples the US market compared to Europe and Asia (the very same bureaucracy that created a self inflicted opioid crisis by being overly swayed by pharmaceutical lobbying)
The perverse incentives of insurance companies and an equal if not greater factor than regulator burden.
Insurance companies are not incentivized to lower costs, because it allows them to charge more. Pharmacy Benefit Managers eliminate the price bargaining power of even the largest pharmacy chains. Healthcare is complex, expensive, and required for life, which make it inherently susceptible to market distortions.
Absolute bullshit, drug prices are set according to how much they can squeeze out of it. It’s borderline dishonest to pretend the prices correspond to R&D expenditure
Readit News
Links to an article from 2017 about a tax loophole that was closed in 2020 [0]. As an Economist that by his Wikipedia article [1] dedicates so much of his time talking about the Irish tax regime, he should be well aware of this fact.
[0] https://budgetmodel.wharton.upenn.edu/issues/2024/10/14/the-... [1] https://en.wikipedia.org/wiki/Brad_W._Setser
The link under your quoted line in the TFA seems to be talking about Apple (and others) preparing for the end of the Double Irish by finding other tax havens.
"Elite tax advisers help Apple Inc. and other corporate giants skirt impacts of crackdown on 'Double Irish' maneuvers."
So, I don't see what's invalid about the TFA's point, which is about tax avoidance in general
As someone close to pharmaceutical manufacturing, the reason why the manufacturing is done in Ireland is for tax benefits for sales in Europe.
So why not have a US factory for US sales? Because it's much more expensive and complex to have two separate factories making the same drug. It's far easier to just scale the Irish factory to serve all global sales.
Even the same companies with Irish factories have US factories as well. It's not like any tax benefit moved that out of the US as well.
If Pfizer operates in the US at a loss (or at least they did in 2018-2020) and all the profits are booked elsewhere it was their choice.
https://www.finance.senate.gov/imo/media/doc/wyden_pfizer_in...
Switzerland is a whole different matter, but such carelessness doesn't improve trust
And then there's this:
> The top seven pharmaceutical companies are paying $10 billion or so in tax on their $70 billion in offshore profit. They are just paying all that tax abroad.
So these companies already pay 14% in corporate tax. In the US, they'd pay 21% headline rate, but with room for deductions (I can't find a good source for what they actually pay, but here's [2] a bad source putting the R&D deduction alone at $15b/year across the top 8 companies). This 21% changed from 35% in the 2017 act the article criticises, though some deductions were also reduced. So corporate tax can't be the main differentiator here.
It's nice, for balance, to see an article that says the problem with Trump is that he just isn't protectionist enough. But the arguments here don't hold up.
[0] https://www.efpia.eu/media/219735/efpia-pharmafigures2017_st...
[1] https://efpia.eu/media/2rxdkn43/the-pharmaceutical-industry-...
[2] https://americansfortaxfairness.org/drug-firms-fight-restore...
There is no such thing as trade imbalance, it’s called trade, if you have more money, you buy more.
It seems that China is currently a "sink" in the global flow of money, which will obviously change the landscape in the long run. How? Hard to tell, probably not in such a bad as many people fear. I think it will eventually drive up prices of Chinese export goods, which will force importers to look for alternatives, which is likely better in many regards than having one country manufacturing everything for everyone in the world. But don't trust me, I'm just a random poster on the internet.
Well, hope i can educate you with some marx here ;)
https://en.m.wikipedia.org/wiki/Unequal_exchange
Marx theory of equivalence of exchange is the foundation with which he defines exploitation. With a universal comparison unit (value of labor), you can define unbalanced trades.
Dont ask me though, how a balanced trade would look like. Maybe we can only approximate it via outcome.
You might be tempted to argue they'll use subsidiaries to shift profits but we already have ways of dealing with that. We also have earnings that get reported to financial markets so you can always use the baseline revenue and earnings numbers from that.
We have ways too of dealing with transfer pricing and profit-shifting.
How far do companies get if they can't report earnings to the markets? Or if they try and tank earnings to reduce their tax liability?
You might be tempted to ask "what about private companies?" Subject them to the same reporting standards and auditing requirements of any US-listed company or they don't get access to the US market.
This idea that companies can't be taxed because they're too clever needs to die. So does the idea that they shouldn't be taxed. Governments, particularly the US government and the EU, wield extraordinary power. You can bring companies to heel by withholding access to a market pretty quickly.
It's why I always laugh when companies threaten to abandon a market. As long as there is profit to be made, a company will never leave. Non-IP assets can't generally be picked and moved so you always hold sway over a significant portion of their assets. And the US has the additional power to withhold access essentially to the global financial system.
And of course governments always have the option of nationalizing industries.
Governments should serve the interests of their citizens and corporations should serve the interests of those governments. Governments should not be subservient to corporate interests. Unfortunately, the US government at this point is basically just six companies in a trenchcoat.
I do, however, this could be a good idea. But I think the true issue is that we need a globally unified tax framework (and serious retaliation if a nation decides not to adopt it).
The US had no domestic production of penicillin between 2004[3] when its last plant shuttered until 2021 when a factory reopened.[1] (source 1 and 3 appear to contradict, the 2019 testimony states there was no manufacturer after 2004 whereas it sounds like the plant closed in 2020, regardless the domestic capability is extremely weak)
As usual for American sources this is painted as some nefarious scheme by the evil red Chinese to destroy America by making cheaper drugs available. To add my own editorialising I think US companies are easily capable of ruining US manufacturing and focusing on screwing US patients over.[2] The average citizen should probably be glad of low cost Chinese supply, but nurturing domestic capability as per Biden is sensible.
[0]: https://prosperousamerica.org/skyrocketing-pharmaceutical-im...
[1]: https://www.fiercepharma.com/manufacturing/reopening-penicil...
[2]: https://www.rand.org/news/press/2024/02/01/index1.html
[3]: https://www.uscc.gov/sites/default/files/RosemaryGibsonTesti...
[4]: sources per https://youtu.be/hS0-ugYA-ko?si=xCNzctCGr9f2M7ct
I think it's more like losing a pawn. Except now others have taken 3 unanswered pawns and everyone said "eh we've still got our queen" but now the queens are looking shaky and you're staring down a 3 pawn short endgame and no one believes you can turn it around.
US wants to punish India for importing Russian oil - except when US themselves are consumers of that processed Russian oil.
He lied, obviously.
Deleted Comment
For this reason a lot of tech companies have subsidiaries in the Nerherlands. Uber is the first example that comes to mind. All card charges when you take an Uber in Europe are to Uber N.V - which is a Dutch Entity.
The Netherland has a decades old strategy of being "business friendly" - if you're a huge corporate.
This culminates in two things. One, The Netherlands has the most tax treaties of any country. This creates many loopholes.
Two, The Netherlands Tax Authority will happily help you take advantage of those. You just have to call them up and say "I plan to sell and lease back some IP through Swasiland, is that OK?" and they will tell you up front whether the loophole you found is OK to use - it's called a "ruling" and it's binding to them. This takes away any concern your tax lawyers might have about being thrown in jail for being too creative.
The basic idea is that The Netherlands would rather help a big corporate avoid paying 10% tax in another country, if it means they pay 1% in The Netherlands. Or even 0% corporate taxes and only some payroll tax for the people working at the Dutch office (job creation for tax lawyers who, as established earlier, lead a stress-free life).
A while back, some executives from the Shell oil company appeared on Dutch television proudly saying "of course we don't pay taxes! Why else would our HQ be here?". This was a bit too rich even for the Dutch viewers, and Shell ended up moving to the UK, presumably after some of their tax rulings got a second look due to political pressure. Unilever similarly left to the UK (who were also giving out tax deals like candy after Brexit ruined their economy).
Note that the author is conflating The Netherlands being a tax haven (which it is) with the location pharmaceuticals are produced.
To take advantage of Dutch tax avoidance strategies, most companies focus on intellectual property; this is why your IKEA pitches has "copyright InterIKEA systems B.V." printed on it. Made in some low wage country, but the license fees for its design are paid to a Dutch for-profit company owned by a non-profit(?) foundation.
In other words, it's easier to produce pharmaceuticals in, say, the Phillipines, and then do some shady (well, pre-approved) accounting to make taxable income disappear into thin air. There's also going to be some importing and re-exporting going on (guess which EU country is home to its biggest port, despite being a tiny country).
Nevertheless, pharma production - or rather "life sciences" - in The Netherlands is one of the governments 9 focus industries. This policy is focused mostly on high-value add activities like R&D rather than production. This will also skew the numbers.
This is actually pretty smart on their part.
What most countries don't want to accept is that when the cost of business is too high, companies will either pack up and leave or pay tax advisors on how to move every cent of profit to another country that is business friendly and their dreams of collecting billions in tax remain just that, dreams.
I feel similarly for infrastructure and communications as well.
Your parents medication cost more than a car payment because there's no motivation in the US system to reduce prices for most drugs. Quite the opposite for insurers who provide ACA--they're actually incentivized to increase the cost of care so that the 20% they are allowed to spend on marketing, executive compensation, etc can grow as well.
Then the cost intensive flips. Insurer wants cheap healthcare and drugs so that they won't have to pay as much. This was part of what the original "affordable care act" tried to do, but was ultimately removed from the version that was passed.
It's also how insurance works by default almost everywhere except in the US.
Are Europe just better at R&D then? Does Europe have more lax medication regulations? That is what your argument would suggest. But i somehow doubt that.
Looking at the share prices of the top medical industry companies in the US, from insurance to medicine production to private hospitals, it would seem there is plenty of margin going elsewhere for some reason.
Are we also ignoring that a lot of medical R&D is funded by grants and government investment? Its odd how the pharmaceutical companies are sooooo strained for money from the (partially already paid for) R&D that they have to take out a 600% margin on the product to cover it for decades after the drug has been on the market.
But it's clearly the famously harsh American bureaucracy that cripples the US market compared to Europe and Asia (the very same bureaucracy that created a self inflicted opioid crisis by being overly swayed by pharmaceutical lobbying)
Insurance companies are not incentivized to lower costs, because it allows them to charge more. Pharmacy Benefit Managers eliminate the price bargaining power of even the largest pharmacy chains. Healthcare is complex, expensive, and required for life, which make it inherently susceptible to market distortions.