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The great profit shift.
There has been essentially no growth in the profits US firms report in the world's major markets (apart from the UK) over the last twenty years. All the growth in profits has been in a small number of low tax jurisdictions
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There has been essentially no growth in the profits US firms report in the world's major markets (apart from the UK) over the last twenty years. All the growth in profits has been in a small number of low tax jurisdictions
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According to IRS data (from a newish data), the average employee of a U.S. firms in Bermuda generated $50m of profits each year, the average employee in Caymans and BVI about $5m.
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The majority of the US firms foreign profits (over $300b) is now booked in the world's corporate tax havens. And firms pay less that $15b in tax in these jurisdictions.
(back in 16 they still had a deferred US tax liability,not they owe the low US GILTI rate)
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(back in 16 they still had a deferred US tax liability,not they owe the low US GILTI rate)
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The pre-tax reform effective rate US firms paid on their US income was around 20%.
On their foreign income in low jurisdictions it was around 5% -- a rate well below Ireland's famous headline 12.5%
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On their foreign income in low jurisdictions it was around 5% -- a rate well below Ireland's famous headline 12.5%
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Before the tax reform US firms shifting profits to low and no tax jurisdictions could defer paying US so long as the funds notionally remained offshore. Their deferred liability was eventually settled at 15.5% (on cash)
The tax rate on these profits now? Just over 10.5%
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The tax rate on these profits now? Just over 10.5%
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85% of taxes paid abroad can be deducted v GITLI, so the 4% effective tax rate paid in aggregate in the low tax jurisdictions pre-reform + 10.5% GILTI rate produces an 11% effective rate (to the first approximation) ...
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The net result, one highlighted by Martin Wolf: the tax reform hasn't ended incentives to shift profits to low tax jurisdictions
on.ft.com/30m3JLu
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on.ft.com/30m3JLu
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An example: Microsoft just consolidated its global operations in Ireland, moving some valuable IPR from Singapore to Ireland rather than back to the United States. Looks like the first step toward emulating Apple's new Irish tax strategy.
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irishtimes.com/business/techn…
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irishtimes.com/business/techn…
Bottom line: the tax reform itself needs to be reformed ...
the OECD's BEPS process on its own isn't going to solve the problem of profit shifting; there are too many new BEPS compliant tax structures springing up.
9/9
the OECD's BEPS process on its own isn't going to solve the problem of profit shifting; there are too many new BEPS compliant tax structures springing up.
9/9
